All Out Of Ideas?

The financial crisis has had a big impact on American innovation, reducing access to capital and intensifying a culture of risk aversion. So does the US face an innovation crisis? And how serious is the threat to America’s innovation leadership?

American industry has a history of paranoia when it comes to technological superiority. If it wasn't the Russians and the space race, it was the Japanese and their manufacturing models. Now it's the Chinese and the Indians challenging American dominance in an area critical to long-term growth and economic health: innovation.

Since the mid-1990s, the United States has reduced the intensity of overall R&D funding as a percentage of GDP at the same time that the nature of global competitiveness in business has fundamentally changed; more companies are turning to low-cost, offshore locations to help them do more with less, and as these emerging economies mature, so does their capacity for sustaining a culture of innovation.

Many think that the US economy is losing its traditional strength in the area of innovation. A recent report by the Information Technology and Innovation Foundation suggests that although the US ranks sixth among 40 nations and regions in terms of innovation and competitiveness, its progress has slowed to a crawl in these areas. "All of the 39 other countries and regions studied have made faster progress toward the new knowledge-based innovation economy in recent years than the United States," says ITIF President Robert Atkinson.

The financial crisis has not helped, either, reducing access to capital and perpetuating a culture of risk-aversion. "Precisely at the time when we most need long-term risk capital to plant the seeds for the next generation of breakthrough innovations and to fuel sustainable job growth in America, these factors have conspired to drain the risk capital that is the lifeblood of our economy," argues Venture capitalist Pascal Levensohn.

Of course, not everyone buys into the idea that the situation is critical. Last year, the RAND Corporation published a study arguing that the US continues to be the leader in science and technology. "The United States accounts for 40 percent of the total world's spending on scientific research and development, employs 70 percent of the world's Nobel Prize winners and is home to three-quarters of the world's top 40 universities," it said. Even so, the report warned against complacency. "The US continues strongly, but the rest of the world is coming from behind and catching up.

So what does the US need to do to better nurture a culture of innovation? Where is the biggest challenge likely to come from? And do we need another Manhattan Project to help channel the innovative potential of America's scientific, R&D and business communities? Business Management asked a panel of experts for their views; the results were illuminating.

Andre Texeira

Head of R&D, Campbell Soup Company

The biggest challenge is to deal with the unknown. Innovation is something that people have grown to believe is a wonderful thing. I've never met a CEO who doesn't like innovation, just as I've never met a mother who doesn't like to say her child is creative. But since everybody believes innovation is a good thing, it becomes harder to manage the unquantifiable elements of the innovation process: the unknown, the unexpected, the failures. And in reality, innovation - in most cases - leads to failure rather than success. It's very difficult to manage the expectation of 100 percent success when it is seldom the case.

In some ways the old one percent inspiration, 99 percent perspiration rule still applies, except that the inspiration is now facilitated by the multidisciplinary nature of innovation. We are working a lot less in silence than we used to in the past, which means that a lot of inspiration comes from the cross-fertilization of ideas, from learning from each other. So probably that one percent has increased a bit. 

I think that we still look at most processes in corporations - innovation included - very much like a relay race, but we're moving gradually towards more of a rugby scrimmage model, where everyone actually pushes together rather than moving forward individually. One of the ways companies are achieving this is to have environments and forums and working groups that involve people from different disciplines learning from each other - not just sharing what we know, but rather learning the things that we don't know that we know, which is probably the most important thing when you're working in a team. You need to have a free dialogue where people learn what they can from others and then make better decisions. Decision-making continues to be one of the most difficult pieces of the innovation process.

The current economic downturn has had a huge impact. In a downturn the key message is to focus on the core business; just as we kept hearing for many years that innovation would be the most important engine for growth during the good times, when you have a downturn immediately that focus shifts on to your core business. It means, as they say in Texas, that you have to learn how to whistle and chew gum at the same time - focus on the core yet maintain the long-term growth strategies - which is very, very difficult.

The important thing is to be able to focus. I always like to use the analogy that we need to have a telescope and a microscope in our hands at all times so that with the telescope we can gaze at the stars, while with the microscope we can see everything in minute detail. But for heaven's sake don't get those two instruments mixed up.

Gustaf Sahlen

Senior Manager, Fast Innovation & Growth, Accenture

It's quite clear that people still think innovation is critical, and it's also clear that companies still invest heavily in innovation. But what we have seen is a shift towards more incremental innovation - innovation that is lower risk and more focused on the short-term, as opposed to what is termed 'breakthrough' innovation that involves long-term investment and higher risk.

And I think that is a big problem for companies today: that they feel forced to focus on low-risk innovation. If you look at breakthrough innovation, there you have quite a high interest in combining different innovative dimensions - you combine, for example, the product innovation dimension with the business model innovation dimension with the market innovation dimension and the process innovation dimension. It drives collaboration and a different level of problem solving. Unfortunately, companies tend to focus too much on incremental innovation - even more so in today's tough economic situation, where risk aversion is probably the main stumbling block to developing a sustainable culture of innovation. Companies tend to be even more risk-averse when markets are depressed, and I think that this is a structural problem in almost all industries - that they tend to focus on too many low-risk, short-term projects.

So how do you address this? I think that first of all you need to think of innovation as a business discipline, not as something creative that is happening deep in the R&D, marketing or design departments; it's something that you need to manage like any other business discipline in the company. So having a structured approach towards innovation is essential, and you need to have three main components. You need to have foundation. You need to have conversion. And you need to have consistency. Foundation is your ideas, your strategies; conversion is how you convert all these ideas into viable business concepts; and consistency ensures that you don't do this just once a year, but you do it over and over again. So by combining these three main components, you will achieve a high value from your innovation investments.

Someone suggested to me recently that America's position as an innovation powerhouse was under threat from countries such as India and China, but I'm not sure I really agree with that. I would say that most of the innovation that I see in the emerging markets is still of the more short-term variety, and more focused on product line extension, etc. whereas the big innovations, the breakthrough innovations, are conducted in the main corridors of the major R&D centers in the developed world. I do think that will change - and I definitely see it changing when companies decide to focus on developing products specifically for the emerging markets - but for now America's ability to combine all the innovative dimensions and its level of expertise mean it will remain an innovation leader.

Tom Wujec

Senior Fellow, Autodesk

I actually don't think that entire regions are more or less innovative than others. But do America, Canada, Europe - even Asia - face an innovation crisis? You bet they do, because the challenges we face now are more profound than ever before.  Let's break down what innovation actually means. First of all, innovation is the capacity to recognize problems to be solved.  Second, it's the capacity to generate insight into the solution of those problems.  Third, it's the capacity to formulate a clear picture, vision or strategy of what the solution could actually be. Next it's the capacity to develop something that is technologically feasible. And then finally, there's the marketing and the execution side of things.

The United States is very good at many of those areas, while India is terrific at others. So I think what's going to happen is that different businesses will propagate to different regions based on the resources and the strengths of those cultures. So, for example, a firm moves to India. Does that mean India's more innovative?  Well, there aren't as many technological resources and deep investment pockets available in India as there are in other parts of the world, so perhaps it's for other reasons. Maybe it's because India's got a very strong educational system and they're hungry for new ideas. Infosys and many other companies are, of course, testament to that. So I think it's natural that many industries that depend on human capital will migrate to India.

Where we have technological innovation, I think we're going to continue to be very strong in the United States and Canada because we have depth of expertise and a strong history here. Will that move to other parts of the world? Absolutely. We're seeing huge R&D labs being developed throughout Taiwan and China, and I think there's a very strong chance that the United States is going to lose some of its leadership in terms of technology innovation.

I think the heart of innovation is the development of small, effective work teams.  Innovation doesn't really occur in companies; it happens in relatively small teams, perhaps 8-20 people, who work together to solve problems. Look at organizations such as Google. It's a huge organization, but the actual innovation takes place with relatively small cells of individuals. What we need to do in North America is develop a series of techniques to make these teams far more creatively effective. And that means not only giving them the right tools, but also the right culture to be able to do all the things an innovative company needs to do. To have the freedom to generate new ideas; to have the time to clarify what problems they're trying to solve; and to distribute those problems through other parts of the organization to come up with effective solutions. Culture and process are the two drivers for innovation, and when you have that, the other things will follow.

Richard Tait

Principle, Product Development Consulting, Inc.

We define innovation as not just creativity, but creating new value in the marketplace. And one of the challenges that we face when we start talking about innovation with our clients is that they think of innovation as innovation for itself. But we believe that innovation for itself is not enough. It's the output of innovation, the new value that you create for your customers, which will provide the competitive advantage for you in the marketplace.

How do you go about doing that? I think the big challenge that most companies have in today's tough economic climate is finding the resources to commit to creating new value. They spend all their time just trying to stay on top of difficult economic situations. They're not finding it easy to invest the key resources needed to create innovative ideas. So do we face a crisis in innovation? I think it's less a crisis of innovation as a crisis in being able to take the steps to make innovation happen. People are always willing to look for and identify new opportunities, but that's just the front end of the innovation process. It's finding the resources, the capabilities - all the pieces that companies need in order to take that concept of what's possible and turn it into a reality - which is the difficult part.

People often ask me where the real danger will come from. Is it China? Is it India? I think the real issue is having our own people willing to step up and make the necessary investment and resource commitments; to take the time and energy to structure an approach that enables them to really understand what it is that customers are looking for, and then to invest their time, their energy, their people and their resources to go and systematically deliver that value.

People have suggested another Manhattan Project, but I'm not sure this is the answer. If you look at the Manhattan Project, it was massive numbers of people all structured around a single goal. But the power of the American enterprise system comes from the proliferation of smaller players, all doing different things and often working independently. They look for areas where needs are not being met, address them in small ways, and then grow and grow and grow. The Manhattan Project was large-scale innovation. But I think we need to encourage more small-scale innovation and enable that to flourish more than the large-scale stuff.

In fact, North America could be its own savior.  The energy level of entrepreneurs, if you've ever talked to them, is phenomenally high. What you want to do is enable them to flourish. Give them the tools they need to help structure their efforts. Give them the support structures to enable them to really understand what will work and what won't, and they will take it from there.