Innovation, Jobs, and Corporate Performance

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.

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Reader Comments

Russ

November 13, 2009 01:11 PM

How can there be an American innovation shortfall? We brought in millions of super geniuses on H1bs to replace US engineers. The super geniuses certainly should have innovated some amazing technology by now...

Karen

November 13, 2009 01:33 PM

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morjay

November 13, 2009 01:38 PM

Im always amazed when business leaders talk about innovation !! Innovation takes foresight, creativity and guts and todays business severely lack in all. Example: its like Dick Cheney coming up with one useful creative idea !! Simply wont happen. Hell if anyone was creative in big business and government we wouldnt be having the same financial problems we had in the 30s. But the big thing is the rest of the world is quickly becomming more innovative and creative than the US. America is making its own bed and now we will have to sleep in it !!!!

Morjay

November 13, 2009 01:48 PM

Innovation and American business is a joke. Total lip service from the most un-creative people in the world, CEOs, government bureaucrats and worst of all politicans !!! None of them can solve a problem and fianlize it, they just drag the same problems on and on. Well while American business sits and fiddles the rest of the world is getting more and more creative and innovative.

jenny

November 13, 2009 04:32 PM

American companies are using H1-B's to cook the books, not for innovation. Although I guess you could call 'cooking the books' innovation. ;)
Anyways, here is where you will find Up and Coming Free Boycott List: http://www.myvisajobs.com/Top_Visa_Sponsors.aspx

Jenny

November 13, 2009 04:34 PM

Innovation....good luck, Americas best and brightest aren't working thanks to the Soft crowd and offshoring jobs.

http://www.myvisajobs.com/Top_Visa_Sponsors.aspx

Joe

November 13, 2009 10:27 PM

First and most important question: What constitutes "genuine innovation" (to use your term)?

Second question: How will it be measured and correlated with economic improvement?

Ajay

November 13, 2009 11:53 PM

Joe, if he knew what "genuine innovation" was, he wouldn't be writing for Businessweek. ;) The way most people, who're completely incapable of reasoning let alone innovation, figure out what innovation is is that they wait till somebody like Google's making billions off their search algorithms, then say "That's innovation." Before that money's rolling in, they wouldn't know that same "innovation" if it hit them in the face. That's because innovation is about being able to discern the handful of good new ideas from the millions of bad ideas that are tossed out everyday, something that takes a great deal of knowledge, analysis, and insight. Suffice to say, almost nobody qualifies; good ideas succeed mostly randomly, after some random person finally decides to try them. As for measuring and correlating with economic improvement, I have to question your basic assumption that it can be measured or correlated numerically. Rather, we tell stories about google making our life easier or smartphones making us much more capable: most of what you can do is verbalize these trends and observe the cause and effect of innovative products leading to growth. Measurement is hairy, particularly cuz what qualifies as innovation is vague, as you alluded to.

Tom E.

November 14, 2009 09:43 AM

I think innovation has gone done as accounting and financial people have taken over the CEO role in most large companies.

We need more CEOs with marketing, production and other backgrounds.

Mike Reardon

November 14, 2009 04:13 PM

We all know now, we live in Tomas L Friedman flat world. But, American Business wants a ramp it can coast down to profits on. Unless we will give tax breaks and add direct subsidies to lower there flat completive market, American business won’t support new innovation or add new employment.

They've had in all Military contracts, and they remain firmly in place as constant profits for those businesses. Find businesses a big enough tax advantage and new employment will follow. Find businesses a big enough subsidy and new employment will follow. The same for innovation in America, its demanded from here out for American businesses in a flat world.

From here out we will give support to American manufacturing exactly like we have supported American agriculture businesses to this point.

Rycoka

November 14, 2009 07:57 PM

One thing: Innovation is about change, and in my 44 years I have seen an incredible amount of change - so I'd suspect that innovation may be doing better than seems to be suggested here.

The economics of innovation though, may suggest that broadening the adoption of proven innovations produces more benefits more easily.

Investment in a globalised market would therefore tend to flow strongly towards opening new markets for proven innovations (emerging markets).

However, where a compelling need for change exists (eg climate change), innovation will surely follow, whether it is reducing the cause or just adjusting for the effects.

Climate change adjustments (such as dealing with rising sea levels) will require major engineering efforts. I reckon a sure-fire winner in the medium term will be heavy construction equipment (Caterpillar shares?).

A final note - finance industry. Reward for innovation in this area has been amazingly good (and the risks for big players are covered by government). I would guess that a lot of America's best brains have been working in this space, perhaps reducing the "brain power" being devoted to more practical, science-based, forms of innovation.

Jule Rizzardo

November 15, 2009 06:24 PM

I think the economy gets to a certain point that not even innovation can win-over until it shows some signs of improvement. I'm concerned about California's economic downturn and how rapidly it has spread to other states! http://parttimejobs.rizzardo.net/2009/11/11/california-not-only-state-hit-hard-by-budget-woes-paycuts.aspx

Michael Lippitz

November 18, 2009 05:10 PM

In response to Ajay (November 13, 2009 11:53 PM), while it is true that for most companies "good ideas succeed mostly randomly," many large companies are going about it more systematically these days -- and getting results.

The random model you describe we call an "opportunist," and it only works repeatably at those few companies with a long tradition of innovation. (E.g., 3M. See http://growfromwithinbook.com/2009/11/my-day-at-3m%e2%80%99s-innovation-center-%e2%80%93-initial-observations/ )

But there are other models--Enabler, Advocate and Producer--that leading companies are making work.
(http://growfromwithinbook.com/2009/11/innovation-myth-2-organization-and-structure-are-the-enemies-of-innovation/)

Ajay is right that "measurement is hairy," in part due to vagueness in definitions but also because companies tend to protect information such as revenues from new products/services/businesses. Without that, it's hard to know the impact on the bottom line. That said, IBM reports $15 Billion in ANNUAL new revenues from the Emerging Business Opportunities effort. (http://www.fastcompany.com/magazine/92/ibm.html)

Ajay

November 20, 2009 03:47 AM

Michael, I don't see much of a difference in randomness between your 4 mooted models. My point is that regardless of the exact way any particular idea is cultivated and implemented, the actual idea is chosen mostly randomly, ie the people choosing the idea have no real clue of its likelihood of success. Ultimately, some succeed and others fail but if you evaluate the actual reasoning used to choose the idea, it almost never holds up. This is confirmed when the people who chose the successful idea are almost never able to come up with another success later (though there are confounding factors such as their biting off more than they can chew the next time around). Your work to further innovation in a corporate environment is interesting but ultimately doomed in my opinion. What's going to happen is that we'll see a multitude of online freelancers that will collaborate virtually for innovation, without a "company" in sight. To give you an example in a related field, what will replace newspapers is just such an online sea of bloggers, all writing about what they think is most interesting.

Michael Lippitz

November 23, 2009 05:58 PM

Ajay, There are many elements to success, with initial screening being just the first. While I agree that no one knows in advance whether a given idea could succeed, companies have generally become much more systematic and rigorous in initial testing and screening. In other words, they've implemented the concepts that were popular in the 1990s for taming "the fuzzy front end." Leading companies today are applying Discovery Driven Planning, which gets right to your point about being clear and systematic about reasoning, particularly assumptions. (See http://marketdrivengrowth.blogspot.com/2009_08_01_archive.html)

Companies are also focusing more on systematically considering HOW a given idea can succeed; that is, what is
the best domain and business model for bringing the idea to market. They are doing this precicely because, as you note, the original reasoning "almost never holds up." IBM has been a leader here. (See, for instance,
http://www935.ibm.com/services/us/index.wss/ibvstudy/gbs/a1028552cntxt=a1005266). My colleague reviewed an early draft of a new book by one of the co-founders at Innosite (with Clayton Christensen) on business model innovation. (http://www.amazon.com/Seizing-White-Space-Business-Innovation/dp/1422124819/ref=sr_1_1?ie=UTF8&s=books&qid=1259012261&sr=1-1)

Your observation is correct that in a lot of cases the people or companies that have one success are not able to
repeat it. That's a lot of what my book is about. Our work on the 4 models also takes this one level higher, to look at the repeated generation of NEW BUSINESSES, not just new products and services.

There's no guarantee that this is going to work for every company in every context. (One of our recent blog posts
concerns developing a corporate entrepreneurship strategy: http://growfromwithinbook.com/2009/11/developing-a-corporate-entrepreneurship-strategy/)

But you're contention that the effort is "doomed" is way too pessimistic. Companies are making significant money doing this, and we're seeing an increasing number investigating what they need to do to keep their best talent and ideas from walking out the door.


Ajay

November 24, 2009 04:59 AM

Michael, initial screening is not just the first element, it's the most important one, as it doesn't much matter if you can implement an idea if it's a bad one. I didn't make a point about being systematic about reasoning, I said that almost nobody is capable of such reasoning. What ends up happening is some random collection of ideas is tried and some small subset succeeds, for reasons that have nothing to do with why they were initially chosen. I don't say this because I think it's impossible to reason about these ideas, far from it, I say it because I've seen that almost noone has shown themselves to be capable of such reasoning. I'm not sure business model innovation matters much if it's the same corporate giants like IBM proposing them, who'll find some way to botch it. If you're developing models of how innovation tends to happen, that's fine, I just think applying it to a corporate context will fail and soon be irrelevant. That's because the corporation is about to disappear, to be replaced by a sea of information workers, that Drucker and others have long been talking about, who form temporary virtual teams to work on particular projects, with nary a corporation in site. This fluid environment will be highly geared towards innovation, unlike the corporate environment that inevitably becomes much more geared towards politics and power games that actively avoid innovation, because innovation upends the existing structure and makes such political gamesmanship much more unpredictable, which such rent-seekers are always trying to avoid. Ultimately my point is that innovation will no doubt flourish, but it will flourish precisely because talent and ideas are about to walk out that corporate door forever.

Michael Lippitz

November 24, 2009 11:07 AM

Your contention that applying innovation "to a corporate context will fail" is simply factually incorrect. And while there is certainly greater fluidity and information content in work today, and that trend is likely to continue, everything is not going to become information work. We're never going to eat information or run our cars on it.

You may not have met many people who can reason effectively and flexibly about new concepts, but we've met a lot of them. And we've seen many companies overcome the "politics and power games" that indeed have and continue to inhibit innovation in many established corporations.

I understand the bias against big companies when it comes to innovation and entrepreneurship. One can certainly find many examples to support it. But a lot of people don't appreciate how many companies are finding ways to create networks among the "sea of information workers" both inside and outside the company. The corporate form is here for a while, and my colleague and I have made it our work to help channel their capabilities toward the critical challenges we face today.

Ajay

November 24, 2009 05:08 PM

Michael, I don't see how you can claim that a prediction that applying your models to corporations will fail is factually incorrect, it's a prediction. Yes, all work is not information work, your point is? As for those who you claim can reason about new concepts, I say "where's the evidence?" I see no evidence of those people while I see plenty of stupid ideas invested in every day. Yes, it's possible for corporations to inhibit innovation-stultifying politics to some degree but why bother when we don't need corporations at all? I don't think bias is quite the right word to describe big companies' lack of innovation and entrepreneurship, the right words are "plenty of evidence." :) In my limited experience, I've found that networks within organizations are practically non-existent, forget about outside. It's only now with open source that you start to see a bit more networking going on outside corporations, but that's not too meaningful since open source doesn't have much of an economic model. The corporation is about to die off, an innovation that you don't seem able to see. ;) If you look at the average lifetime of S&P 500 companies, it trended downward for the whole 20th century: it's about to go off a cliff and disappear altogether. :) Perhaps your innovation models will be useful even in the resultant fluid environs, I'm just saying that your work to apply it to a corporate context is not going to matter.

Michael Lippitz

November 24, 2009 10:03 PM

I understood you to be saying that corporations don't innovate. That's what I was saying is factually incorrect. We have about a century or so of evidence to the contrary.

As to the future, if the corporation does not die off, then our work on corporate entrepreneurship is going to be quite relevant. Just in the last decade, we've documented billions of dollars of revenues from innovative new businesses out of established corporations. And the trend appears to be growing. The nature of innovation is changing in large corporations.

You might also be surprised by how well many companies are learning to network and leverage the power of open innovation. IBM, who you dismissed, has been a leader in fact. We just posted a blog this week on open innovation in green technology http://growfromwithinbook.com/2009/11/two-models-for-building-business-ecosystems-in-green-technology/

The bottom line,I think, is that we disagree about the future of the corporation. We love entrepreneurs and the power of open IT. But there's a lot of innovation happening outside that domain, and we believe major corporations will continue to play an important part.

Ajay

November 25, 2009 12:47 AM

Michael, I think it's fair to say that corporations don't innovate, yeah. There are always entrepreneurs who innovate and form corporations afterwards, but there is sparse evidence of existing corporations innovating. Even if the corporation doesn't die off, my point is that the form is largely geared against innovation so what you're trying to do is get the elephant to dance, a largely impossible task. Of course, there is always going to be a little innovation that manages not to be squelched inside the corporate behemoths but you take those supposed "billions" of dollars of revenues generated internally and compare it to the hundreds of billions generated by entrepreneurs and it's no contest. Green technology is a joke to me so I'm not even going to bother to address that. Yes, we disagree about the future of the corporation and it can be largely ignored as entrepreneurs are about to kill it off entirely, :) precisely because the corporate environment is intrinsically geared against innovation and the environment that replaces it won't be.

Michael Lippitz

November 25, 2009 11:36 AM

I'll leave it as a judgment for the readers as to whether IBM, Apple, 3M, Sony, DuPont, GE, Cargill, Google, Zimmer, Siemens, and so on haven't continued to innovate, long after becoming large corporations.

As for the numbers, the 2006 ROI reported by 1,860 US VCs tracked by the National Venture Capital Association was about $100B. IBM and Apple alone are making billions from recent innovations. Start-ups are critically important, but the bottom-line results from large corporations are in the same ballpark....and growing, according to our research.

Ajay

November 25, 2009 03:30 PM

Michael, Let's actually examine some of your supposed innovative companies. Apple hasn't done much innovation in decades, mp3 players were around long before the iPod and all Apple does generally is bring other companies' innovations to market in a flashy form that all the hipsters eat up. The same with Sony, perhaps you can list something they've done that you found innovative and that made money? As for Google, it is well known that they've done little since the search algorithms they started with that was innovative and certainly nothing that's made them any money, as 99% of their revenues still come from the search/adwords combo. I'm not familiar with the claimed innovation of the other companies in your list but given how the high-tech corporations I mentioned aren't doing much with the much more plastic and potentially fruitful technology of software, I'm fairly certain that your other examples aren't doing even that in their higher investement domains. If you want an actual exception to this rule, the company I'd have suggested is Intel. A couple billion in corporate innovation is in the same ballpark as $100 billion in startup innovation? Most corporations follow the Microsoft model: wait for somebody else to innovate and prove a model then copy it and bring it to market with more money behind it (Bing, Zune, the list goes on), hate to break it to you but that's not innovation.

Michael Lippitz

November 29, 2009 08:13 AM

Apple is an interesting case study precisely for the reason you cite: They did not invent the mp3 player, but they were the first to make significant money from them. How? Not by simply "bringing it to market with more money behind it." And not through their designs, however elegant. Rather, they figured out a new business system that provided value for a large chunck of the music ecosystem, particularly consumers. They innovated in many dimensions at once.

Companies such as Walmart and Starbucks are also innovative even though they do not invent anything. Innovation is about more than new technology. Your Intel example is a good one, in the sense that they've not strayed far from a single technology platform (microprocessors) and yet have figured out how to create value in many new and different markets. I suppose one could make the same critique of them that you make of Google; that is, that "they've done little since the microprocessor." But that would be incorrect.

As for the math, the VC figure cited was for returns for about 2000 VCs covering tens of thousand companies. The innovation results of large companies are not tracked in the same way, but we are familiar with billions of dollars of return from just the several dozen we've researched. If the innovation results of large companies were measured more comprehensively, we believe the aggregate figure would be comparable to aggregate VC results, if not much higher.

This begs the question of "what is innovative" that people will naturally have different views about. The trend we see is to view the innovation problem as one of discovering and building valuable business systems, not just new technologies, products or processes. (http://growfromwithinbook.com/2009/11/innovation-myth-1-you-must-have-new-products-or-services/)

Ajay

November 29, 2009 04:36 PM

Michael, Apple was not the first to make significant money from the mp3 player, they just made more money than anybody else. All Apple did differently is combine the music store software with the hardware and sell it all as one package. Does that qualify as innovation? Perhaps a little, but not really, certainly not enough to list them as an innovative company. As for your other unnamed dimensions that Apple innovated in, it speaks volumes that they're never listed. I agree that Walmart and Starbucks can be innovative without inventing a completely new product: Mike's regular readers are very familiar with incremental and process innovation, which can be much more important. The reason one can say Intel has been much more innovative than Google or Apple is because we can actually examine their microprocessor innovations, such as creating new processor microarchitectures or using new high-K dielectrics, that make their processors faster every year. Google's search algorithms are hidden on their servers, so you can't really say if they have innovated with those either, but the fact remains nothing else they do has made any money. If you're going to define any change as innovation, then sure, the "innovation" revenues of large companies might come close to entrepreneurs. By that definition, Microsoft getting into the search market years after Google had proved the search/ads model et Voila, that's innovation! I agree that companies need to create new businesses to survive but let's not confuse simply copying an existing proven business, which is all corporations often do, with innovation.

Dominic

December 3, 2009 11:30 AM


I have to mostly agree with Ajay

Apple wasn't the first company to try to build a music store, many tried before (2 only in Seattle that I know) but met stiff resistance from the majors...so maybe Steve Jobs was just more politically able to get the recording company on board or just lucky in timing when they finally saw the writing on the wall and tried to make a buck from the new inescapable trend.
Other "innovative" companies and entrepreneurs were just lucky to be in the right place at the right time....how much funding do you think Jeff Bezos could obtain in the present climate with a company that was going to make its first profit 8-10 years or so down the road? Playing with his spaceship toys with the money the investing public threw in the market bidding up Amazon shares? Talking about overvalued companies...

Greg

December 3, 2009 01:37 PM

Sounds good

Greg

December 3, 2009 01:37 PM

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Joe F. Cardenas,B.S.C.

February 3, 2010 10:45 AM

Citizens, the time is now to put on the thinking cap to avoid further failures and human anguish with respect to the US and the world economy!

The threat of a new recession this year 2010 is a possibility.

Do we as a society have what it takes to deal with a catastrophic depression?

Is this a test for the capacity of the capitalism to endure?

You and I are very much aware and feeling the negative effects in our pocket books, the reduction in limits of our credit accounts, and the banks never ending increment charges of interest rates!

The ripple effect: Lower credit scores, less working capital, business closing down, home foreclosures, less confidence in the system etc...

The majority of politicians, lobbyist, and lawmakers are not working fast enough to find a true solution and instead are rewarding the infamous bonus-hungry Wall Street bankers and other speculators with billions of bailout dollars allowing monopolies to set arbitrary prices, charge fraudulent fees and outrageous interests while confiscating the purchasing power of you and me, the middle class consumers.

Sorry to tell you "Mr. Banker" you are part of the problem and not the solution!

Bankers got the economical stimulus money from the taxpayers, ironically "We the people", but instead of helping the taxpayers they stab us right where it hurts charging us higher interest rates!

What is wrong with this picture?

A better solution would have been for government loans via Internal Revenue Service at a fair interest rate (say 5%) and a proportional distribution according to a tax bracket awarded to each one of the taxpayers of The United States. In other words, the stimulus money is coming directly to you in order to resolve your present economical situation.
Not the Banks!

Now that is really something… think… Everyone wins including you "Mr. Banker".

Utopia?

I do not think so.
I would call it a direct infusion of capital to taxpayer abiding citizens in order to promote growth and stability to the number one Nation of the World, The United States of America.

That is an economical impact or should I say an "economical revolution."

My question to you …, now that you have your thinking cap…

What kind of long-term jobs would you create in order to fortify the middle class of The United States?

I welcome your intelligent comments and answers.

Joe F. Cardenas, B.S.C. Director of Photography http://www.VideoPhotoPR.com

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About

Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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