Tuesday, June 09, 2009

BW - The failed promise of Innovation

On June 3, Business Week published a really interesting article of Michael Mandel with a provocative argument: we have lived through an innovation shortfall during the last decade, specially in the US, and this is the main culprit of the problems that we face today.
The long and detailed article walks the reader through a decade long series of unachieved promises, pointing out that it has been the gap between expectations and unfulfilled promises what caused the actual financial problems, finally managing to bring down the whole economy.
Data from studies like The Atlantic Century, a benchmark exercise of the degree of innovation of the 40 most innovative countries, where the US shows the least progress of the 40 nations in innovation competitiveness and innovation capacity through the decade (1999-2009) further sustains the arguments providing some concrete evidence.
The article however, convays an optimistic message by proposing that innovations are there, but delayed. And even if they had flourised in the IT sector, in order to be systemic encompassing several technologies and producing a significant impact in our lives, they must flourish in several sectors and combine.
Even if it seems difficult to agree that was an innovation shortfall and not an inadequate regulation of the financial system together with an overly optimistic appreciation of risk what caused the actual downturn, we all probably agree that the article has a point.
In fact we know that innovation is not linear, but has a characteristic S shape that can be rapidly and easily appreciated in technological innovation.
We also know that systemic innovation depends on the diffusion and adoption of technologies in a wide community to flourish.
Although the adoption process is now much faster than before, the lenght of the S shapes depends mostly on the translation of high level knowledge onto low-med level knowledge. This translation depend mostly in the percieve capacity of value transformation in a 3-5 year period range, which rules out many technologies where transformation is not so straighforward.
This is for example, a significant difference between Asian's and American's innovation system and probably accounts for part of the shortfall. Companies simply focused too much in innovations where value could be obtained faster. In the time of fast growing Internet and Financial companies this will rule out many sectors and effectively postpone or delay many innovations being a clear disadvantage.
A second reason that can explain this perception of shortfall is that in times of big changes, old companies agonize while new ones, even if being there, are still not recognized as their successors. This is perceived with clarity in the early stage of disrupting technologies, even if the sales of traditional lamps is low, leds still don't take a significant portion of market share.
Finally, systemic innovation, depending on a wide diffusion and adoption of the technologies that are going to constitute its building blocks, can take a significant amount of time to appear.
However, even if the US innovation system has significant problems when dealing with a) long term innovatons, b) systemic innovations and c) multi-stakeholder innovations and this 3 areas should be addressed by the administration if America wants to maintain its lead, it seems bizarre to portray the decade of Internet as an innovation shortfall.
Having said that, it is true that there is no better time for addressing the problems than the one where the need to do so appears more compeling, and this time is now. Let's therefore salute the contribution of Mandel maybe not for its capacity of explaining what has happened but for its ability in pointing out fast and future problems that could stagnate our innovative capacity and by doing so prevent growth.
--- Written after listening to the podcast
The podcast provides a better explanation than the article. Mandel did look at companies that really tried hard beyond the 3-5 year boundary and his thesis is not that the innovation shortfall is responsible for the actual crises, but that without this shortfall this crises wouldn't have existed, thesis on which we all can probably agree.We will live in a different world.
Mandel doesn't find anything fundamentally wrong in the way innovations were pursued, just that they were harder to achieve than expected. This dissonance between what we anticipate and reality has always been there, but now is probably amplified by the advent of Internet.
If that is true, the next ten years we all will have a flood of innovations.

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