Archive for economic factors
Beware the Unintended Innovation-Killing Consequences of Laws and Policies
Posted by: | CommentsThe road to innovation fatigue is paved with good intentions embodied in laws, regulations, and even corporate policies. Leaders at all levels must be aware of uninteded innovation-killing consequences that may follow from their good intentions. Staying in touch with the “voice of the innovator,” as we advocate in Conquering Innovation Fatigue, is vital in avoiding such pitfals.
The Wall Street Journal from Dec. 4 offers two columns with examples of innovation fatigue factors that can be introduced by well-intended actions. The first article I wish to mention is “Near-Zero Rates are Hurting the Economy,” an opinion column from David Malpass, president of Encima Global, LLC. He argues that the artificially low interest rates created by the Federal Reserve Bank in the name of rescuing the US economy have actually been driving capital overseas and starving small companies–the leading sources of most innovation, economic growth and job creation, as studies from the Kaufmann Foundation and others have shown. Here is an excerpt:
[M]ore than a year after the heart of the panic, the Fed is still promising near-zero interest rates for an extended period and buying over $3 billion per day of expensive mortgage securities as part of a $1.25 trillion purchase plan. Capital is being rationed not on price but on availability and connections. The government gets the most, foreigners second, Wall Street and big companies third, with not much left over.
The irony of the zero-rate policy, coupled with Washington’s preference for a weak dollar, is a glut of American capital in Asia (as corporations and investors shun the weakening U.S. currency) and a shortage at home. For gold and oil, the low-rate policy works, weakening the dollar so commodity prices go up and providing traders with ample funds to buy into the expanding bubble. Those markets are almost daring the Fed to try to break out of its zero-rate box.
But for small businesses and new workers, capital rationing is devastating, spelling business failures and painful layoffs. Thousands of start-ups won’t launch due to credit shortages, in part because the government and corporations took more credit than they needed (because it was so cheap).
Already countries with higher interest rates, Australia for one, are viewed as less risky because they have room to cut rates if there’s another emergency. This wins them capital and jobs that might otherwise be ours.
According to International Monetary Fund data, U.S. GDP has fallen to 24% of world GDP from 32% in 2001. And as U.S. capital escapes the weak dollar and high tax rates, the U.S. share of world equity market capitalization has fallen to 30% from 45%. This leaves the U.S. alone with Japan at the bottom of the monetary heap, with rate expectations so low they repel investment.
When single individuals or organizations make policies that affect millions, it is far too easy for good intentions to translate into new problems, unless the decision maker is essentially omniscience. Failing ominiscience, perhaps market forces should be given a try, allowing the invisible hand mediated by the mechanism of price to determine the right allocation of resources. But even with a reluctance to use market forces to set interest rates and allocate capital, wiser decisions could be made by policy makers if they understood the personal side of innovation and the barriers faced by the innovators seeking to propel our economy forward. Unfortunately, the real innovation engines of the future aren’t likely to be powerful, highly connected people today, but may be a lone entrepreneur or president of a small company today that could grow and create many thousands of jobs, if only given a chance. Giving credit and bailouts to well-connected dinosaurs can be based on good intentions, but it may be a misallocation of resources that only makes things worse for the most important prospective innovators and job creators out there.
A second article in the Dec. 4 Journal is “Sarbanes-Oxley on Trial” (p. A24), an op-ed piece that briefly mentions the economic burdens this 2002 law has imposed, and urges government to modify its implementation to be more accountable. There is much more that could be said, some of which we discuss in our book. Sarbanex-Oxley is especially burdensome on small, innovative companies and has driven many innovators to look outside the United States in launching a start-up. Intended to make businesses safer and more accontable, it has slowed job creation and economic growth, in the eyes of some experts. Unintended consequences. It’s something every policy maker and business leader needs to be worried about. Are you listening to the voice of the innovators who have to live with your decisions? That could be the difference between success and innovation fatigue.
The View from Singapore: Vision and Leadership in Conquering Innovation Fatigue
Posted by: | CommentsI just returned from an adventure in innovation and culture in one of the world’s most delightful and innovative nations, Singapore, where I spoke about innovation during Innovation and Enterprise Week 2009 sponsored by A*STAR, the government’s large program for the advancement of scientific technology and research. What remarkable vision is at play in this effort!
Singapore is an example of what can be achieved in a nation with a bold vision of economic progress and long-term growth. One consistently gets the impression that officials there, whether university leaders, team leaders, or high-ranking politicians, have a strong desire to advance the welfare of the nation and its people by giving people the resources and opportunities to work hard and succeed through innovation and entrepreneurial activity. There is a culture of cooperation and vision that seems to permeate the activities of leaders and influencers far more than you might see in other parts of the world. The nation is not without its problems, and no individual is without human flaws, but what I saw impressed and surprised me.
The nation decided years ago that it wanted to be a place for world-class research and development. They boldly recruited leading talent and ramped up education for its own citizens. They crafted beautiful complexes for interdisciplinary research to pursue targeted areas. This resulted in a large science park, and then the One North complex with Biopolis, a collection of large buildings for R&D in the life sciences, and Fusionopolis, a massive edifice intended to bring together numerous disciplines in other areas. They invested huge amounts of money to support R&D. While other companies and nations are cutting back, they are increasing their R&D spending from what was about 2.5% of the GDP recently to 3% in 2010. Many billions of dollars are being committed to achieve their vision.
One cannot explore Singapore without realizing that its leaders are serious about making Singapore an attractive place for business, for research, and for innovation. They understand the importance of location and co-location. They have worked hard to make Singapore a center for business for many multinational corporations. Currently over 7,000 MNCs have a presence in Singapore. They have worked to bring many disciplines together for targeted purposes by co-locating disciplines in research at One North, which is also near to the National University of Singapore, the Ministry of Education, and other key facilities, not to mention integrating industrial centers such as the Lilly Center for Drug Discovery on the Biopolis campus. Bringing people and institutions together physically creates opportunities for synergy and cross-fertilization that can’t be matched by remote online interactions.
The synergy between business and state-funded R&D is further strengthened by sending researchers into industry for internships or limited engagements to provide firsthand experience into the realities of a start-up or other business.
The planning behind A*STAR has resulted in many fruits. There have been nearly 30 spin-off companies from these recent efforts. A patent estate of over 3,000 applications and patents exists (this number from A*STAR apparently includes filings in multiple nations, so the number of patent families is considerably less, but still healthy). Significant growth in licensing revenues is coming through the efforts of Exploit Technologies, the licensing and commercialization arm of A*STAR. International recognition is being earned for the accomplishments of A*STAR.
How a small nation of four million people has transformed itself into a powerhouse of R&D and excellence in science and business shows what can be done with strong leadership and a commitment to the future. Of course, you can’t overlook one of their secret weapons that help attract and retain so much great talent: some of the best food in the world. Check out the food courts at Biopolis and across this island nation. This is a land that understands the importance of great food. After all, isn’t food ultimately the fuel behind human innovation?
Here is a gallery with a few photos I took while in Singapore. Click on a thumbnail to see more of the respective photo. The first photo shows the famous mascot of Singapore, the mythical Merlion. The building in the 2nd and 3rd photos is Fusionopolis, showing two different views (north and south sides). Then there are some downtown shots and a Buddha in Chinatown.
The Upcoming Innovation Crisis: Talent Management
Posted by: | CommentsDavid Semb’s outstanding essay, “The Upcoming Crisis in Talent Management” for Chief Learning Officer magazine, points to a tsunami of trouble ahead for US corporations in terms of retaining the know-how and experience that makes business run. The demographics point to a huge loss of experience and knowledge in the next few years. While innovation is not his focus, the threats he describes may be especially severe for innovation talent, including R&D staff.
Consider these alarming statistics: 40 percent of the U.S. labor force is currently made up of baby boomers (born between 1946 and 1964)…. However, by 2010, there will be a 52 percent increase in workers in the 55-to-64 age bracket compared with 2005, and 40 percent of the U.S. workforce will be considering retirement…. The first wave of executive retirements will begin in the next four years….
While current leaders may work a few extra years before retirement due to the financial crisis, this will not significantly lessen the impact of the near-term surge in leadership vacancies at U.S. companies.
Retirees will take with them millions of years of on-the-job experience. Yet there are far too few emerging leaders to replace them.
The U.S. Bureau of Labor Statistics projects a shortfall of 10 million qualified employees beginning in 2010, with a gulf likely to increase in following years.
According to Deloitte Consulting LLP, by 2012, the U.S. labor force will be short 6 million college graduates to fill new jobs and to replace retired workers. By then, according to The Conference Board, workers from ages 35 to 44 — the subset of the workforce that fills the majority of senior management ranks — will decline by 19 percent.
Seventy-four percent of U.S. business executives surveyed agreed the U.S. will experience a shortage of skilled workers over the next decade, according to BusinessWeek Research Services for AARP.
David Semb is worried about the loss of executive leadership. I’m also worried about the loss of seasoned innovators and the experienced leaders and connectors who facilitate innovation. Much innovation is fueled by or enabled by experienced people with vast, healthy networks that can bring multiple disciplines together or can reach across a value chain or value network to get things done. Suddenly replace such people with brilliant, talented new hires out of college and the almost-invisible ecosystem that gave life to business growth and innovation can wither or even collapse. Likewise, if a majority of your experienced innovators who know how the company works and how to get things done are suddenly retiring, innovation can come to a standstill. Great care is needed to plan for and prepare for these transitions, to help transfer skill and knowledge effectively and to build new nodes in the ecosystem that can keep it healthy and self-sustaining. This does not happen by accident. This does not happen by laying off your older workers and hiring cheaper replacements.
Semb offers some advice for coping with the tsunami of change. Here are a couple of his suggestions:
- Closely align talent management and succession planning with business strategy. Development must tie to strategy, yet a 2006 McKinsey & Co. study showed that more than half of their senior management interviewees felt that talent management strategies did not align with business strategies.
- Train like the future depends on it. Invest in high-impact leadership and business skills training, including strategic thinking, financial acumen and leadership skills….
- Become an employer of choice. Transform the organization into an employer of choice by establishing compensation plans, training programs, remote work arrangements and the scope of job responsibilities so that emerging talent is inspired and motivated.
Many large American companies are responding to the current economic downturn by laying off employees, slashing benefits, imposing hiring freezes, and taking other steps that will create lasting impressions on the rising generation of employees. The wiser companies are finding ways to continue hiring the best talent and look attractive as a potential employer, even though they may be forced to hire less than normal. The wiser companies are willing to take on pain for the next few years in order to rise triumphant for decades to come as they maintain the talent they will need for the future. The talent management crisis, both for business leadership and innovation, is one that cannot be neglected. Focusing on short term fixes now may cost you your future.
The Palm Pre: How a Focus on Short-Term Results Can Destroy the Fruits of Innovation
Posted by: | Comments
The Beautiful Palm Pre
As I began writing this post, my wife was in a car a thousand miles away with a brand new smart phone. I received a call on someone else’s phone informing me that my wife’s smart phone had quit working completely after following the instructions she received from tech support to fix the GPS system in her phone. The GPS had quit working that morning after tech support had her do another set of procedures to fix another problem. Now she had no GPS and also couldn’t make or receive calls. The problem would later be resolved. I’m still not sure how much of it was due to network trouble (the black hole effect I describe below), hardware trouble, user error, and questionable tech support, but after almost 3 weeks of experience, I can say two things about the Palm Pre: 1) It is a terrific and beautiful phone with many innovations, and 2) Palm is doomed. Doomed, I fear, unless they make some changes in their business model and better consider the harmful long-term impact that some short-sighted decisions may have. The exciting work of the innovators within Palm may be destroyed, in the long run, by Innovation Fatigue Factor #5, “Flaws in Decision Making and Vision”(the subject of Chapter 9 in Conquering Innovation Fatigue).
The problem, in a nutshell, is that Palm and Sprint (the only network for the Pre) apparently have decided to focus on getting the limited production of Palm Pres into the hands of as many users as possible, rather than letting tech support staff have them. The quality of customer service is being deliberately sacrificed to grab more market share and get more buzz among consumers, but this may backfire and create negative buzz due to some compounding factors. Some users may be happy with what they can figure out on their own and never need tech support, but I think many Palm Pre users are likely to need support. I say this because users are not given the Palm Pre manual and the manual in PDF form is not provided on the Palm Pre, cannot be downloaded from the Palm Pre, and even if loaded onto the Palm Pre, cannot be read by its PDFView application without crashing the phone. It’s a painful irony that makes aggressive users rely more than they should on tech support, and yet tech support is in the dark. When you call 888-211-4727 for support, you will be speaking with someone who has never used the phone, perhaps never even seen one. You can usually get to a human in under three or four minutes, which is wonderful, but simple questions can take far too long to be answered, if an answer ever comes. If uncorrected, this will drive consumers away from this phone and toward the many alternatives that can do many of the same things.
Here’s an experience that illustrates the problem of using inexperienced tech support instead of people familiar with the phone. I had a problem with a disappearing icon. There are five icons across the bottom of the screen for a newly installed phone: one for dialing, one for contacts, one for email, one for the calendar, and one that brings up a directory of apps and services. On day two of using my phone, the email and calendar icons disappeared. I’m still not sure how. There were suddenly just 3 icons, not five. I was able to still find email by navigating through the apps, but wanted the convenience of rapid access to email that the icon provided. So how does one get it back? Nothing in the skimpy guide given to new users addressed the issue. So I called tech support.
After being escalated through three levels of tech support over the course of an hour, I still hadn’t found anybody who could answer that question, so I gave up when, mercifully, the signal dropped. The top-level person didn’t call back. The next day, when I had to call again for another issue, and while talking to a rep, I asked this new guy if he knew the answer to the icon puzzle. He put me on hold for about 60 seconds, and then came back with the simple solution: press any icon in the apps window for several seconds until it glows, then drag it into the row of icons at the bottom of the screen and it will stick. I was delighted. “Wow, that’s great. Do you mind if I ask why you were able to help so quickly when three levels of tech support yesterday all searching for the answer couldn’t help?” “Oh,” he said, “there’s another guy over here who owns a Palm Pre. So I asked him and he was able to show me.” Ah, someone with experience – someone with a phone!
Because the person I reached knew someone with experience, he was able to reach out to his local value network and get the knowledge I needed, and he could do it in 60 seconds, compared with a fruitless hour of my time and Sprint’s when talking to people without experience. My wife and I have been contacting tech support a lot– far too much, but usually out of necessity–and nearly everyone I’ve talked with didn’t know much about the phone at all. Thank goodness one person had access to someone who had one.
By going for short-term market share by getting more sets into the hands of the public instead of into the hands of your own support staff, Palm is taking a huge risk and incurring costs that may well outweigh the benefits of the accelerate distribution to the public.
Anecdotal evidence of innovation thriving in times of economic trouble have found broader confirmation in a recent study from the Kaufman Foundation. Their press release, “Kauffman Foundation Study Finds More than Half of Fortune 500 Companies Were Founded in Recession or Bear Market,” summarizes the story nicely. Here is an excerpt:
According to a new study by the Ewing Marion Kauffman Foundation, challenging economic times can serve as the rebirth of entrepreneurial capitalism, leading to the creation of much-needed new jobs.
The study, “The Economic Future Just Happened,” found that more than half of the companies on the 2009 Fortune 500 list were launched during a recession or bear market, along with nearly half of the firms on the 2008 Inc. list of America’s fastest-growing companies. The report also suggests a broader economic trend, with job creation from startup companies proving to be less volatile and sensitive to downturns when compared to the overall economy.
“You can see the story of the American economy in these numbers,” said Carl Schramm, president and CEO of the Kauffman Foundation. “History has demonstrated this time and again: new firms create new jobs and fuel our economy. Policies that support entrepreneurship support recovery.”
The study points out that while recessions often create widespread economic grief, they also can encourage potential entrepreneurs, acting “as an extra spur to founding a new company, if the founders perceive their prospective competition might be weakened.” Rising unemployment can benefit new enterprises: entrepreneurs may view unemployment as an opportunity to start a company, and seize the advantage provided by the ability to tap into a larger pool of potential employees.
This is no time to succumb to innovation fatigue, as painful as this recession is. This is the time to ramp up innovation efforts on all fronts. The winners of the future are being shaped now.
The Downturn: This Is the Time to Invest in R&D/New Product Development
Posted by: | CommentsAn April 2009 report in the McKinsey newsletter, “R&D in the downturn: McKinsey Global Survey Results,” reveals that many leading companies are not shredding their R&D budgets. These companies view R&D and new product development as a source of competitive advantage. Where R&D is clearly important for future success, many companies are actually expanding their programs. This is excellent strategy. During a downturn, a lot of great talent will be laid off by short-sighted competitors. This is the time to pickup the brains needed for the next wave of game-changing innovation. It is also a great time to take the steps needed to seize market share in the near future by building momentum as others are slowing.
At the same time, it is frustrating to watch some companies aggressively downsize their innovation staff and innovation efforts, even when it is definitely not needed. They may get a boost in stock price over the short term, but as the economy revives, those who pay the price now to build innovation momentum will rush to victory and leave the laggards in the dust. (That’s if the economy revives, which it certainly should–if we can resist the temptation to give it too much artificial help. Sometimes well-intentioned first aid, like over-zealous CPR on a patient whose heart is beating, can be worse than doing nothing.)
Economic downturns can seem like huge external fatigue factors, but for those who are prepared and wise enough, they can be great opportunities to change the balance of power in the market. Don’t forsake innovation, even when times are tough. Look for creative ways to expand your efforts and become more innovative.
One thing that can help is pursuit of low-cost intellectual assets (there are many creative things that can be done with defesive publications, for example) and more cost-effective innovation strategies such as the targeted “just in tune” innovation based in the “Horn of Innovation” model that we discuss in the book, Conquering Innovation Fatigue.