Financial innovation

The economic application of a new idea. Product innovation involves a new or modified product; process innovation involves a new or modified way of making a product. Innovation sometimes involves a new or modified business organization method [Black, Hashimzade, Myles, p. 139]. The process of developing new securities, financial structures, or other innovative solutions to market participants' needs. It can involve derivatives, tax, accounting, regulatory, or other aspects of the economic environment in value-added solutions. An excellent example of such activity would be the ‘repackaging’ of perpetual floating rate notes, which started with existing issues and then was developed into a structured finance technique in its own right ( cf. instantly repackaged perpetual) [Doyle, p. 141]. The spreading of innovations around the economy and between countries. This may proceed by simple copying of an innovation, possibly under license, or by modifying and adapting an innovative idea to apply it to related problems elsewhere in the economy [Black, Hashimzade, Myles, p. 150]. The process through which new products, concepts, services, methods, or techniques are developed. Innovation, particularly technological innovation, can cause ‘discontinuities’ in a market that may lead the market to be radically different from one responding to a classic product life cycle. The significant variables with innovations are the speed and scale of their adoption in the marketplace [Doyle, p. 142]. An entirely new product is introduced to the market to perform a function that no previous product has performed. Such a product requires developing new consumption or usage patterns [Law, p. 145]. A statement formalizing a company’s new-product strategy and giving management’s rationale behind the search for innovation opportunities, the product, market, and technology upon which to focus, as well as the goals and objectives to be achieved [Law, p. 273].

Sources:

Law, J. (2016). A Dictionary Business and Management (6 ed.) Oxford: Oxford University Press.

Black, J., Hashimzade, N., Myles, G. (2017). A Dictionary of Economics. Oxford: Oxford University Press.

Doyle, C. (2016). A Dictionary of Marketing (4 ed.) Oxford: Oxford University Press.