Is Innovating Failing In The US?

Posted by: Bruce Nussbaum on June 4, 2009

My colleague and chief economist of Business Week, Mike Mandel, has a provocative piece out saying that the promise of innovation in the US has not been met over the past decade—and is a main reason for the current financial and economic crisis. This is a must read article.

Boiled down, Mike argues that most of the major innovations of the pasts decade has not lived up their potential as economic generators. He lists technological breakthroughs in biotech, cancer treatments, cloning, fuel cells, gene therapy, new drugs, miniaturized silicon-based machines, satellite-based internet, speech recognition and human tissue growing. All were promising in 1998. All failed to live up to their promise. Or did they?

Economists and policy-makers tend to confuse invention with innovation. Innovations are significant changes that add value to people and organizations. Breakthroughs in science and technology per se do make for innovative changes in society. So it is not the failure of innovation over the past decade that is the problem but the failure of technological and scientific breakthroughs to become innovations that is the issue.

So why? My answer that engineers and scientists often forget the social aspect of invention. They come up with new things in labs but do not link them to the needs and desires of people. So they stagnate in labs, waiting for someone to understand the culture, to tie the breakthroughs to society. Go to any period of great technological and scientific change, such as the late 19th and early 20th centuries, and you'll find a one, two, even three decade-long pause between invention and innovation. Scientists are often clueless on how to apply their inventions and it takes years for that application to be found, often by those who aren't the inventors.

Paul Saffo of Stanford recently gave a speech where he said that if you want to find the best opportunities for economic growth and investment coming out of the current recession, look to technological and scientific breakthroughs made two decades ago. Bio-tech and social media are two of his picks.

So Mike, I think I agree with you, kind of. We've had a terrific period of invention over the past decade. But we need to bring in the designers and their empathetic, user-centric, anthropological approaches to innovation to turn them into growth generators.

I hope the policy-makers in Wsshington understand this.

What do you think about his conversation?

Reader Comments

Steve Portigal

June 4, 2009 8:43 PM

Thanks for this, Bruce. It's always provocative to consider why technologies don't become innovations, even when a lot of people seem to want them to.

For starters, I'll point you to some great writing by Nicolas Nova on what he (and others, I imagine) term "Failed Futures" http://liftlab.com/think/nova/2009/03/01/exploring-failed-futures-at-lift09/

I think in many cases there are strong stories out there about how such a technology should work for people, and it's often hard - without the marketplace as proof - to dissuade people. Speech-recognition is a great one, no matter how much better the various applications get (and frankly, it's pretty stunning what can be done now, i.e., airline reservations when at one point it was technically unreachable), consumers and technologists/marketers frequently offer up pie-in-the-sky desires ("Oh, what I really want to do is talk to my device and have it just do what I tell it") that when taken literally will direct product development down the wrong road. Because if we take the time to listen just a bit deeper, we'll understand the joining of a need to a solution needs to be teased apart; people ask for voice input because they've heard about it and imagine it could do something, but even if the technology is available, it's never going to be appropriate to navigate complex interactions verbally. The real desire is for simplicity and we hear the voice-input request and may not realize that's just how people imagine things might work someday.

Without a better effort to prototype these technologies in order to understand what is needed or desired, these things will be prototyped in the marketplace and people will then find out that it doesn't work.

And there's always going to be breakthroughs that need to be built and launched (hello, Twitter?) before anyone will start to understand what their effects really are....

David Wetherell

June 4, 2009 9:33 PM

I disagree that there is a cause and effect between innovation and the current recession and economic crisis. I can think of many more reasons, such as lack of banking regulation, allowing a 40/1 loan to reserve ratios, no clearinig house for CDO's, Hank Paulson, Alan Greenspan, Will McDonough and the repeal of Glass Steagall. It could be argued that each of these independently are more responsible than any lack of innovation.

That being said, there is a severe threat to ongoing innovation due to dried up venture capital, as a result of the current economic crisis.

Many of the innovations you mention are still in the process of revolutionizing their respective fields, e.g. gene therapy, new forms of energy, etc. VC's became afraid of gene therapy when Jesse Gelsinger died in 1999. Later, scientists learned it was due to an inappropriate selection and use of the viral vector that was selected to deliver the gene therapy. Today, gene therapists have identified a safe and effective vector in the lentiviral vector. See www.lentigen.com. I could go on with each of your examples, but putting the blame on a lack of innovation over the last two decades is looking in the wrong direction.

The ultimate example is over the last 15 years, the innovation of the world wide web has been nothing short of transformative, and if was not for Alan Greenspan being so concerned with the wealth effect and the potential for inflation when he flooded the banking system with cash in late 1999, for fear of a run on banks due to the Y2K scare, the resultant market crash of 2000-2001 probably would not have been anywhere near as severe. There was no inflation. By raising interest rates six times in six months, he killed the IPO market, VC going into innovative early stage companies dried up, and the markets collapsed.

Certainly Hank Paulson, in 2004, as CEO of Goldman Sachs leading the five biggest IB's to get then head of the SEC Will McDonough to increase the loan to reserve ratio from 12 to 1 to 40 to 1 and then packaging up the toxic assets and exporting them around the world did far more to cause the present economic crisis.

Best,
David Wetherell
Founder and Managing Partner of GBP Capital

Douglas Wils

June 4, 2009 10:07 PM

Correct Bruce...technological invention is not innovation. However, I have not heard anyone talk about the goals for innovation. Can you tell me the end goal of innovative thinking? Are we building a healthier society or increasing the net present value of future cash flows? Obviously, they are not one and the same. A healthy society should be the end goal with a true valuation of wealth to measure it. Yes, we need to bring in the empathic designers, but let's not rebuild what we already had because it will just lead us to the same place: now where. It's time for us to rethink what we are building. I believe we should be building a society not a bank account. A numerical representation of our society is not true wealth. ie GDP I am here to tell you that health is wealth. As a society, we are not healthy. Everything we do, make or consume should move us toward a healthier society. Maybe, the first thing designers need to do is rebuild how our financial engine gives incentives to those with the innovative talent to make a difference. How do we do it? Not sure yet...but maybe carbon credits are a sign that we have taken the first step. Maybe there are other types of credits and incentives. When incentives are only measured by financial gain, inventors and innovators alike lose sight of what is important...and we get billions of dollars spent on research for male pattern baldness instead of ways to better combat the growing threat of malaria in the emerging world. Its time to rethink the very core of how we incentivize our world. That will be the next American innovation...if we don't someone else will.

Steve

June 5, 2009 12:22 PM

Don't stop at just innovating. Failure has become as American as apple pie...

Bill Poston

June 15, 2009 7:26 PM

Michael Mandel stated and supported his belief that U.S. innovation has failed to realize its promise over the last decade. He correctly asserts that “a high-wage country such as the U.S. either has to develop innovative products and services to compete with low-cost countries such as China or accept a lower standard of living.” In May, Mandel published another article pointing out that U.S. companies are slashing their professional research and development workforces to deliver short-term results; effectively “eating our seed corn to get through the financial crisis.” What should we do about it?

There is no shortage of information and advice available on the topic of innovation. It is the subject of hundreds of books, articles, blogs and conferences. Gurus by the dozen espouse different theories and approaches. Business Week itself devotes an entire section to innovation. If Mandel is correct, we seem to talk about it more than we do it. I do not believe that we lack big ideas or ambitions. Nor do I believe that we lack the hard skills required to develop life-changing technology. In large enterprises, the problem is more often in the basic fundamentals of new product development and commercialization.

We see it every day. Companies of all sizes in every industry struggle with the business process of turning an idea into a successful commercial product or service. Because this process is inherently cross-functional (and these days likely to involve multiple companies), it is difficult to get it right, but building a sustainable and repeatable innovation capability requires addressing the fundamentals.

The essential components of success include:
• A clearly articulated innovation strategy that is consistent with the company’s business strategy;
• Methods for creating and capturing new ideas from multiple internal and external sources;
• An objective process for deciding which innovations to pursue and continuously evaluating progress;
• The ability to simultaneously and cooperatively execute development and commercial activities;
• A plan to extract value from an innovation over the entire lifecycle of a new product or service;
• Leadership that values, understands and actively supports the role of innovation in company success.

The decision by a company to cut spending in R&D may be perfectly legitimate. We know that much of this spending is “wasted” as not every dollar invested results in a profitable product. The question is not how much should we be spending on innovation but what should we expect in return. Most companies cannot answer this question as they do not measure the expected commercial value of their product development pipelines. This makes those pipelines a fat target for short-term cost cutting.

This highlights the issue of leadership - and ultimately ownership - of innovation in our companies. We do not believe that we lack the ability to deliver innovation nor that success is necessarily dependent on brilliant insights or strategies. We need to focus on the fundamentals and make better business decisions. As Mandel points out in his article, there is a huge amount of capital out there desperately seeking a better deal than that offered by government bonds. Improving our ability to repeatedly execute the successful commercial launch of cutting-edge products will attract that capital.

For most organizations delivering on the promise of innovation is a function of addressing the basics.

Bill Poston
Founder, Kalypso

slim

June 17, 2009 7:29 PM

Don’t let anyone tell you that innovation is not happening.
Michael Mandel tried to write a one-sided attempt to summarize lack of innovation in 1998-2008. He uses satellite communications as an example. Certainly satellite communications has been slow to raise speeds; that is because fiber optics has hugely increased capacity and decreased costs. No smart person thought satellite would beat fiber optics. It used to be that satellite sent over 90% of overseas information. Now, fiber transports over 99% of the total overseas communications (leaving less than 1% of satellite). In 1998, most communication channels being deployed were at 2.5Gbit/sec or less. In 2008, 40Gbit/sec is deployed, and 100Gbit/sec linecards are commonplace - a 40X increase. Fiber amplifiers have allowed far larger bandwidth (far more wavelengths) and are only $4K instead of $40K that they were in 1998. There have been huge breakthroughs in optical amplification.
Most home connections were 56Kbit/s. Now, we typically have 6Mbit/s -- a 10X increase. The aggregate of network traffic has gone up by 30X. In 1998, a top-of-the-line computer was 500MHz. Now, 4000MHz is available without any increase in cost -- a 8X increase. There have been huge breakthroughs in metallization, photolithography, short wavelength sources, dielectrics. In 1998, the largest hard disk drives were 40 GByte. Now, you can buy as 1000 GByte drive for comparable price -- a 25X increase in capacity without any increase in physical size. In 1998, you could not access your email, your internet, schedule, etc from your cell phone. There was no iPhone. You could not buy hybrid cars. You could not access work documents from home. Security was primitive. There was no such thing as flash memory to store even 0.1 GB of data. Now you can store amounts comparable to a hard disk. Silicon Valley is doing its job. Most storage or transport or computing systems have increased capacity in the past 3 years by more than the total that was available 3 years ago. It was a different world.

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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