All innovation begins with inclusion. It is only when we take an inclusive view of things that the mind leaps forth with ideas that nest neither in the present nor the past.

Inclusion is about feelings for people and situations that are twice removed from ourselves. When we can build an idea that makes a difference to people and situations twice removed from where we stand, it is bound to be innovative.

In the world of business, we often have problems with such abstraction, so an example is probably in order. Think of it this way: you want to serve your immediate customer or your supplier.

These are people who constitute the so-called value chain. Sometimes all you need is to create a linear extension of your offering to serve them better, it is not necessary to create something innovative. Something "new and improved", something that is "renovated" is good enough.

On the other hand, if you wanted to make a tangible difference to your customer's customer or your supplier's supplier, it would call for innovative thinking. Only such thinking creates competitive advantage by expanding the sphere of influence.  To be able to bring people who are twice removed into the fold of your beneficial impact, you have to think inclusively.

Inclusion as an act leads to connecting with people, their needs, their thoughts and their desires at an existential level. It is at that level that the quality of human thought is at its creative best.

Only that quality of thought leads to products, services and processes that provide new and disproportionate value. What is existential thinking? I learnt the import of that term many years ago from Professor Yves Doz of INSEAD.

Innovation stems from converting knowledge into something valuable. According to Yves Doz, we relate to knowledge at three different levels. At the lowest level, we relate to knowledge in a technical context.

At this level, knowledge is about specifications handed out to engineers who need to create something out of it. It is the kind of knowledge required to be capable of seeing something and creating a similar artifact with desired functionality. This constitutes a layer of knowledge, which can be called adaptive. You and I see something and we are able to reverse engineer it.

At the next higher level rests the intermediate layer known as the experiential layer of knowledge. This level is not about technical specifications and functionality - it is about getting into the shoes of the end-user.

When Nissan wanted to design a car for the European market, it sent a delegation of auto-designers who rented different makes of cars and drove around thousands of kilometres all over Europe to understand what it meant to be a motorist in Europe.

They sought to experience the motoring experience on the French Alps, the Italian country side, the German Autobahn; all vastly different from each other. Then they came back and designed a car that was right for the European market.

Beyond this level is what Doz calls the existential layer, in which knowledge is not about getting into the shoes of the customer but, rather, about the ability to "creep into the minds" of customers. When Sony designed the Walkman, it was operating at this level. Sony is Sony not because it manages 5,000 products or because it knows ferrite magnets and DSP chips and Liquid Crystal Displays and optimal supply chains.

What makes it Sony is the fact that it understands what goes on inside the head of the kid in the Bronx when he dons his headphones and begins to wriggle in his baggy pants. Sony works backwards from that experience to design innovative products and services. Sony gets it at the existential level.

Each of the three levels is separated by a glass ceiling. You do not automatically go to the next higher level because you are extremely good at the one below. As we see in each layer, value is created from how we relate to a given body of knowledge.

Yet, what separates one from the other is the context in which knowledge presents itself. Innovation is possible at each level, but breathtaking, discontinuous and memorable innovation takes place only when we are able to think at the highest level. At that level, it is not about engineering complexity or functional sophistication. It is about feelings and simplicity.

The greatest innovations usually begin with a simple idea.

There is a company in Japan named Matsuura. Chances are that you have not heard about it. Matsuura has been designing motorcycles for Yamaha for the last 50 years. How does Matsuura's design team go about designing the next great bike for Yamaha? It studies movements in nature.

Designers look at the flow of water, the sprint of a gazelle in flight and the aerodynamic movement of a leopard that changes direction in midair.  Despite the advent of complex 3D software that run on high-end computers and can create any model you want, the final design process at Matsuura requires all designers to create a model in clay because they believe there is a transference that happens only through the fingers of the creator that no software can achieve. A simple realisation.

The state of nature is about simplicity. The state of human thought has become progressively complex because we seek sophistication over simplicity. The most wonderful things in the world are also the simplest.

Simplicity delayers confusion. When confusion evaporates, attraction begins. What is complex about a child's toothless smile? It does not lend itself to multiplicity of interpretation. Response to it is not regionally varied or culturally dependent.

What is complex and sophisticated about Mahatma Gandhi's theory, which delivered independence to the world's largest democracy? As elements of design, it had two things: non-violence and non-cooperation. They were simple enough to convey the same meaning to an illiterate indigo grower in Bihar and the Harrow-returned Jawaharlal Nehru.

Even in terms of his personal manifestation nothing about Gandhi was complex - he never tried to appear sophisticated. As a result, nothing about him required complex interpretation. He stood there in such simplicity that he almost appeared naked. That simplicity gave him the power to liberate us.

Had Gandhi donned a designer suit, I suspect we would have been a very different nation today. But, speaking of simplicity in design leading to innovation, let us consider the Apple iPod.

Recently, someone gifted me one. The moment I brought it home, my wife Susmita, who is not a gadget freak, coveted it. I gave it to her. She went to visit her parents. Her father is 72 and her mother is 65, retired folks both. They live in a place that is anything but tech-savvy.

When Susmita placed the thin white earphones on her father's ear and played a devotional song, it instantly connected him to a 1-800 number with God. When her mother listened to it and held the little white thing in her hands, the connect was instant. She did not feel challenged in any way.

She asked Susmita, how much did it cost? That instance, the iPod was gifted to them; they accepted it only after Susmita promised that she would buy one for herself. When I bought her one, my two daughters felt that it was time they also got one each.

Next month, they learnt that if they purchased Apple laptops, they could get an iPod free with the computer. So, each daughter spent $1,500 and brought home the $150 device. They promised to get back some money after selling their existing desktops. I know better.

What does the iPod give to the teenager that no one else does? The teenager wants to store all things nice. She wants to horde. She wants to live in the clutter of her cupboard. But she wants to be able to get in and out of her favourite clothes whenever she wants, wherever she wants.

If music is like clothes, which it is to teens, she wants to be able to carry her messy cupboard with her and look cool while doing it. The iPod gives her that capability in a suburban train, around the campus, at a party, in her bed and on the couch.

The simple white "thin-to-the-extent-of-not-being-there" design is like Gandhi's own functional specifications. A pair of glasses, a loin-cloth, a stick and a pair of cobbled sandals. A display unit, a plain white exterior, a dial and a pair of white earplugs.  Simple.

Part II: The greatest test of innovation