Posted by: Michael Mandel on November 13
Next week I'm looking forward to speaking at two important innovation-related conferences. On Thursday I will be in Chicago at "Innovating Our Way to Prosperity" put on by The Institute for Work and the Economy. It's obviously a critical topic these days, given the weak state of the job market, and I will be giving a talk on "Moving Beyond America's Innovation Shortfall."
Then on Friday I will be in Philadelpha at the Wharton School, at "Borderless Innovation: Management Practices, Promises and Pitfalls" presented by the Mack Center for Technological Innovation. This trend towards borderless innovation is central for today's global economy, and understanding how it works may be crucial for our future global growth, and our future standard of living. My talk is entitled "Global Innovation: The Big Experiment."
And yes, these two conferences are closely related to each other. In the first conference I will look at the innovation shortfall and its aftermath from the viewpoint of job creation in the U.S., and in the second conference I will focus on global innovation and corporate performance. It's my contention that these two perspectives, while very different, actually come down to the same issue: How can we assure that we get more genuine innovation in the years going forward?
I will likely post my presentations afterwards.
Posted by: Michael Mandel on November 13
Here's more bad news for jobs.
According to this morning's trade report, the advanced technology trade deficit widened to $18.2 billion in the third quarter, up from $12.9 billion in the second quarter of 2009 (advanced technology products include 10 categories, such as information and communications, biotechnology, and aerospace).
The third quarter ATP deficit, at $18.2 billion, was just below the $18.9 billion of a year ago. I believe that was the record, though, I'm not 100% sure.
Nevertheless, the widening of the ATP trade deficit is not good news for U.S. production jobs, since it means that even as demand for innovative products recovers, the production benefits are primarily being felt overseas. Employment in the computer and electronic products industry, for example, fell at a 10% annual rate in the third quarter.
What about royalties and license fees to produce the new technology--doesn't the U.S. benefit from that? The total trade surplus in royalties and license fees was $14.4 billion in the third quarter, smaller in magnitude than the advanced trade deficit. Given that royalties and license fees include movies and tv shows as well, it's likely that the amount of revenue from licensing the overseas production of advanced technology products was actually substantially less.
Posted by: Michael Mandel on November 12
...if anyone is interested.
Following my usual practice, I regret to inform you that I've reduced my investments in domestic equities. I think this play still has another unhappy act to run before the (perhaps) happy ending. But is there an intermission?
Posted by: Michael Mandel on November 11
Over the next week, as I clean up my desk, I'm going to be doing short reviews of books that I have been meaning to write about. Let's start with Profit Power Economics, a fascinating new book which combines corporate strategy and economics. The author, Mia de Kuijper, runs her own strategy advisory firm and has a PhD in Economics from Harvard (she stopped by one day, and we had a fun conversation).
The book examines the strategic implications of what de Kuijper calls "The Transparent Economy." How do companies make money in a world of perfect information, where everyone knows what everyone else is doing, and where competition is absolutely intense? She argues:
Profit power is economic clout--the ability of a company to hold on to the value it itself has created, as well as to extract a share of profits from its competitors, to create incremental value for itself and for its partners in business relationships, and to shape the risks it and others will take on....Being "the best" does not guarantee that your company can hold on to its hard-earned gains. Only profit power does that.
These are not the perfect information markets we learned about in introductory economics, where everyone makes the same profits. You have to have some edge (which she calls "power nodes") to ensure that you are not squeezed out by the competition.
The link between this book and the "The Big Shift" of the previous post should be clear. Hagel and company are concerned that American companies, on average, are losing ground because of intense competition, with some companies doing much better than others. de Kuijper is concerned with how to make sure your company is in the winning camp. (Her reasoning applies to careers as well)
Profit Power Economics is a very stimulating read, whether you are a business manager or someone trying to figure out the best career path. The book is a bit dense in parts, but well worth the trouble.
Posted by: Michael Mandel on November 10
In recent months, I've repeatedly made the point that the financial crisis was a symptom, not a cause. Innovation was weaker than expected, private sector job growth outside of healthcare was virtually nonexistent, while real wages and real stock values showed little gains from the late 1990s to the end of 2007, when the recession supposedly started. Most distressingly, stock prices for the nation's innovative sectors, biotech/pharma and information technology, showed a sharp plunge in real terms from 1998 to 2007.
Now there's a new report out today from Deloitte's Center for the Edge which provides additional confirmation that the underlying problems extended well beyond the financial sector, and started well before the housing bubble.
Back in June, the Center--led by John Hagel III, John Seely Brown, and Lang Davison--released a report showing that U.S. corporate return on assets has fallen by 75% since 1965. They suggested this decline in corporate performance was driven by the "Big Shift"--a tremendous increase in competitive pressure, combined with the increasingly pervasive digital infrastructure.
At the time, I told Hagel that I didn't want to write about his "Big Shift" until I saw industry data, so I could understand which industries were driving the corporate performance decline. Well, the new report from the Center takes a closer look at nine industries, out of which seven show the same pattern of deteriorating corporate performance.
For example, here's the ROA chart for the tech sector.
As the report says:
And what about innovation? At least as conventionally defined and practiced, innovation may not help the trend. The Technology industry, known for innovation, experienced one of the steepest ROA declines of all the industries we studied. This suggests that while product and technology innovation may be necessary, they also are not sufficient.
There are two industries where corporate performance is still strong, according to Hagel & Co: Aerospace & Defense and Health Care. The report notes:
We do not believe it is an accident that two of the most highly regulated industries in the U.S.—Aerospace & Defense and Health Care—are outliers in a broader trend of performance erosion. The ever-more-powerful digital infrastructure increases the potential for competitive intensity and performance pressures, but public policy shapes the degree to which specific industries feel that pressure
I still have to chew through the report some more. But it's pretty interesting.
