Patterns of Growth- how innovation spreads and grows

Patterns of growth- how innovation spreads and grows is taken from a report by Nesta, called “In & Out of Sync”. I like this very much for all innovation understanding but here the emphasis is placed on social innovation.

Although patterns of growth vary in detail, they highlight four necessary conditions for putting innovative products, services and (different) models into practice sustainably and on a large scale:

  1. Pull’ in the form of effective demand, which comes from the acknowledgement of a need within society, and from the recognition of that need by organisations (or consumers) with the financial capacity to address it;
  2. Push’ in the form of effective supply, which comes from: first, the generation of innovative ideas (by creative individuals and teams, potential beneficiaries and users, often inspired by anger, suffering or compassion); second, the development of those ideas into demonstrably workable forms; and third, their communication and dissemination;
  3. Effective strategies that connect ‘pull’ to ‘push’, and find the right organisational forms to put the innovation into practice and;
  4. Learning and adaptation to ensure that the innovation achieves social impact, and continues to do so as the environment around it changes.

When these elements are all in sync, innovations achieve ‘resonance’ with their environment and come to appear natural, even obvious.

However, many promising innovations have foundered because critical elements were missing or ‘out of sync’. There might be wide recognition of a need – but not on the part of organisations with power and money. There might be plenty of innovative ideas, but a failure to communicate them widely or to develop them adequately. Or there might be no organisations with the capacity to implement promising innovations effectively.

If any one of these factors is deficient, the potential of the innovation will not be realised.

I just simply like this and thought I share it with you.

Source referral :In and out of sync- NESTA report. (http://www.nesta.org.uk)

Understanding innovation – the W L Gore way.

Once in a while you have to stop and reflect. Why do I keep banging away at innovation, along with countless others? Often I feel we are preaching to the converted, or the ones forced to listen just in case they miss something and are suddenly banished to hell, a non-innovating organization. A place where no one will ever listen to them and this would have been the message to free the shackles and bring them back to innovation salvation.

So here I am standing in the innovation pulpit giving the weekly sermon on innovation beliefs and principles, offering this weekly reading on the (next) ten steps to avoid in that particular sin which we all know you are certainly commiting! Sometimes at the end of the sermon (or article), someone comes up and leaves an offering (comment) that sustains us a little more during the week, as we go about our business, in my case consulting, advising and researching on innovation. What a hard life we seemingly lead!

So it is one of those rare occasions you recall something truly inspirational and this is what happened to me in going back to one of the best examples of true innovation practiced and preached, the “W L Gore way”

Who are W L Gore

For many, Gore needs no introduction but for the few:  W.L. Gore is the  maker of Gore-Tex water- and windproof fabrics, and a multitude of unique medical, electronic and industrial materials a host of other pioneering materials and products as diverse as synthetic vascular grafts, Elixir guitar strings, and Glide dental floss. Gore is a privately held global company, with $2.5 billion in revenue and 9,000 staff worldwide

It is often lauded as “the world’s most innovative company” time and time again, one that unleashed and inspired every person working there in the “the Gore way.”

What reminded me.

What I was reminded off again was a youtube talk by Terri Kelly, the President and CEO of W. L. Gore, made in December 2008. It is really worth watching what you have some time; it is 55-odd minutes well spent from MIT Sloan School of Management with the link here http://mitworld.mit.edu/video/643

Gore encourages belief in the individual, organization around small teams, recognition that people are in the same boat, and that all must “take the long view.” In  their practices among other things, employees are equals (associates), who decide what projects to work on based on “their passion,” The company discourages plants with more than 250 associates, to promote intimate communication and team work, and though others “look at this as an unbelievable expense, we see this as a catalyst of growth,” says Kelly.

Terri Kelly is one of the few individuals at Gore with an actual title; leaders emerge by expressing a vision in clear enough terms to inspire others to follow. Leaders must also do a lot of explaining about decisions and actions.

Nurturing your culture for innovation- the W L Gore way.

As we work within innovation it is well worth stopping and thinking where would it be good to end up and I think W L Gore has some catching up by the rest of us. Let me offer some ‘messages’ that form the culture of this company and make it such an interesting one to study for where innovation seems to be truly integrated within the (excuse the pun) fabric of the company.

Firstly a brief summary

  • Gore carefully introduce processes needed for growth without losing their innovative edge.
  • They have a radical and always evolving management model
  • They practice a “lattice” network structure connecting every individual in the organization to every other.
  • Information flows freely in all directions, and personal communications would be the norm.
  • Individuals and self-managed teams would go directly to anyone in the organization to get what they needed to be successful.

The outcome of this is where everyone is free to talk with everyone else!

Key enablers to make this work

  • Information sharing and peer review are the norm.
  • A strong focus on getting the environment right and the business stuff gets easy
  • More coaches than bosses, lots of peer reviews.
  • Belief that giving the right people the tools and knowledge will bring out the best in everyone.
  • Trust individuals to do the right thing.
  • The culture creates opportunity for everyone to make a contribution.
  • High investment in team building.
  • Divide and multiply concept. Never grow too much to limit bureaucracy.
  • You’re only a leader if people want to follow you.
  • Ability is gained through respect of your peers and this attracts followers.
  • Hierarchy, on demand- who really has the knowledge or if it is situational is the norm.
  • Listening constantly to the voice of the organization and their markets.
  • Ambiguity never clarity to keep it constantly in ‘flux’

The real power lies in the way they practice innovation

  • If you have a great idea you have to convince other people that it’s great, then you get to join and then your job is to keep them motivated for results.
  • There are low barriers to experimentation that drives innovative thinking.
  • Innovation- kept within boundaries- but leverage is mostly on the core
  • Focus on best in class concepts- that offer unique benefits that will be valued b) are a ongoing source of sustainable advantage.
  • Discretion to explore is earned over time
  • Rigorous, transparent peer reviews
  • Ever-evolving portfolio of tools and best practices
  • Fitness for use- doing what it says it will do
  • Relentless protection of IP
  • Investments, not expenses
  • Each associate has a sponsor
  • The power of small teams
  • Compensation based on contribution judged by peers
  • Powerful sense of ownership
  • Leaders provide a balance of challenge and support
  • Don’t need lots of rules and hierarchy
  • The power of influence is the key to unlock and make a contribution
  • Valuing not a few but looking for unique contributions of many.

Gore’s beliefs and guiding principles

What I also like is Gores clear beliefs and guiding principles. These are made up of belief in the individual, in small teams, all in the same boat and holding a longer term view as the payoff but not sacrificing the short-term gain.

In principles they encourage freedom by associates can achieve their own goals best by directing their efforts towards the success of the corporation, action is prized, ideas encouraged and mistakes viewed as part of the creative process. They sincerely try to be fair to each other and to anyone they do business with. Associates are not assigned tasks, they each make their own commitments and keep them and lastly, everyone consults with each other before taking actions that might damage or actions that might be ‘below the waterline.’

Finally their original founder, Bill Gore, stated “the objective of the enterprise is to make money and fun doing so” and they still seemingly work towards this, 50 years later.

The constant challenge of scale

Their challenge has been to scale Gore’s model as it grows; in size, geographies and cultures and into new products and segments. By constantly pushing authority out to small teams, respecting and encouraging diversity and talent from different backgrounds and styles all signing on to the “Gore” way seems to be evolving well but according to them “it is still being figured out as it happens”

Here endeth the (innovation) lesson.

Just recalling this, watching the video again, referring back to some notes I have been building up on this, is as an inspirational story. It does gives me and hopefully you, a real sense that innovation has to be treated holistically, embedded in all that you do to get to achieve such a position as W L Gore in its recognition and praise by many. What a shame it stands out as such a shining example that few seem capable to follow or could they, if they really wanted too embrace innovation as we preach?

Innovation as the means for Economic Evolution

It is suggested that economic growth is an outcome of the innovation trajectory we set. Today managing innovation is complex; often success is measured and valued by the creative destruction of others. The ability to ‘evolve’ is very determinant on the knowledge base, either within a given economy or within a ‘federation’ to bring together as something new, offering more value than what is on offer today.

The combining of the dynamics within innovations parts

Innovation is highly dynamic in its constant change but also in its needs of constant co-ordination of its parts.

I’ve been writing a lot recently on different issues that need thinking through for regaining a more sustaining innovation growth engine. Here I wanted to think out loud, about National issues that become more drags and not accelerators to innovation,  and then try to identify some of the reasons, and then finish with a personal reflection on the US versus European and some suggested actions needed for improving their innovation activity.

Often we forget to put our own innovation efforts into context, so I’d like to go up to the helicopter view here, maybe it helps us to relate better to some of the external barriers that need equal resolution, as we do often come up against these as we try to innovate within borders. Innovation cannot be contained, it needs harnessing but allowed to ‘move’ where it needs to go.

Nations are Very Different and should simply resist copying.

No one nation can just copy another, the same as one business entity cannot simply copy another, each has distinct characteristics, a history and a certain set of ‘physical’ boundaries on where it is located. Different cultures, different histories set each Nation and Business entity apart. The main differences of Nations required to innovate for jobs, for wealth creation is they simply can’t migrate to another country, or spread themselves around the globe to tap into the activities in these different places. Some try to though, with imaginative joint collaborative investments.

Each Nation have to think differently, they are all firmly anchored in their settings, in their history, their investments already made and their own unique needs.  The job of nations is to attract as broad a set of innovation activity and set about to create the ‘right’ conditions and facilitate these as best they can, and always forced to work within the economic circumstances they find themselves within. They can’t escape but they can create the ‘right’ conditions.

The Value of the Innovation System needs well constructing.

The innovation system operating within each country is made up of a set of resources, capabilities, technologies and institutions, all broadly conceived, that need to systematically contribute to the process of innovation. It is the way this is constructed in scope, scale and efficacy will largely determine the innovation prospects. Some countries have a well evolved (national) innovation system that devotes significant resources and knowledge to the system (such as the EU), others allow the market conditions to attract and generate innovation (perhaps the USA).

The argument is if you have a good innovation system you get good innovation policies from this. I often wonder if this is really the case as policies, the world over, are governed not so much by common sense or allowing for market demands to dictate but are ‘interfered with’ by politics, by intervention that often distorts and puts markets out of good order. Decisions often made have knock-on effect that were not fully considered or simply ignored. So each nation makes its innovation system choices.

Capturing and Measuring the Innovation Activities

Innovation operates at the level of people, by firms and networks of firms learning to do new things in collaborative ventures. For them the mechanisms are the important enablers not the macroeconomic structures politicians often get caught up in. What allows competition to thrive, what needs to be in place to be within a cooperative system, where are the resources needed and the knowledge required to be accessed?

It is the ability to create ‘value’ that will determine if one location over another is the appropriate place. Many nations focus hard on these factors, to ensure the set of activities needed to be undertaken by the firm can be achieved. If Nations are not focusing on this point they simply will lose the enterprise and all its surrounding knowledge to somewhere else.

Also sometimes Nations get lost in their fasciniation with statistics and measurements, with comparision. How can you really compare and contrast Nations for innovation, they are simply different? Nations often forgets what is needed is to provide a ‘track record’ and environment so as to allow breakthrough innovation to happen within their borders. This requires providing a friendly set of conditions and encouragement to simply pursue around given ideas or thoughts and find every means possible to facilitate this, look at Singapore and its government as an excellent example, of providing this committed support.

Nations best roles is providing the right climate and nurturing the culture to accommodate it through education, infrastructure and constantly encouraging outward looking thinking and clear the path to make it happen and then anchor the business entity, not only with incentives but in this commitment to fully support it for mutual ‘win-wins’. They grow, we grow.

Often Innovation National Structures Get Caught Up in Other People’s Business

Enterprises claim they ‘welcome’ government involvement, but often they don’t, especially when they see what comes with it in ‘red tape, bureaucracy, countless meetings and committees. Enterprises clearly differ in their innovation capabilities, some are minimally resourced, some are haphazard, highly entrepreneurial and opportunistic while others are highly organized and considerable resourced. How the innovation systems that are put in place to help in all the myriad variations can work is both a demanding and difficult one to balance that is for sure.

Getting Out of the Way, or Placing Yourself in the Middle

The difficulty is where does a Nation wanting to promote, develop and protect its innovation base stand? Does it stay on the sidelines allowing the ‘dynamics’ of the market decide or does it wade right into the middle and swim alongside all the parties, accepting the rough and the smooth?

It comes back to the same problem “it all depends”. Today I think if Nations want to achieve superior innovation outcomes they need to ensure particular skills and practices are present, on their soil, to manage and navigate today’s world of highly uncertain, complex and highly distributed environments by crafting, and crafting really well, the mechanisms that enable this. I do not feel allowing innovation to simply flow is the right way, it needs deep understanding of all elements of innovation effect and often within National policies this is not the case.

Where government and its agencies can dramatically help is in providing instruments and ‘healthy’ funding options to promote and accelerate innovation and hopefully anchor it deeper into its society.

Often the Choice is Hard to Let Go Of

For me, the EU is not the ideal benchmark on how to set about innovation. It is overly structured, complicated and layered. In the EU, the 7th Innovation Research Framework attempts to put this all into place. Alongside its Competitiveness and Innovation Framework program these provide the overarching themes and objectives of where innovation will contribute in society.

The EU funnels its considerable funds through either these programs or derivatives of these or bodies set up to focus and promote ‘given’ activity. It invests in partnership with regional development parties and offers structural funds yet still with all the hard work of streamlining its disbursement into ‘promising’ innovations it struggles to get that innovation momentum required.

The structure itself has a maze that thousands are engaged in, to just pilot their projects through or offer their services to manage this activity to obtain funds or train you in its understanding. This set of activities, born out of necessity, offers no real added value and continues to ‘depress’ and not ‘progress’ innovation as the EU would like.

Taking this ‘highly structured’ route to innovation is not the right way. Innovation needs to be devolved as far down as it can go. The closer it gets to the actual needs of innovation, the better the delivery of resources, funds, structures etc. When the innovation is full of unknowns, completely new technology for instance, then the resource can be effectively channeled to the organizing structure to dispense more in the “R” of research than dispersing for the “D” in development. The EU simply has not got its balance right on dispursement of innovation, both in funds and knowledge, it is to much top down.

Certainly Nations Need a Center of Innovation Knowledge and Expertise

In many countries this is ‘outsourced’ to think tanks, institutions, universities or simply review committees set up to advice government on policy. Often that advice is highly skewed to where the information is coming from. The value of innovation experts residing within a center of excellence can make a difference, it can reduce the risk of failure, improve the chances of pushing the emerging winners.

This center can balance out much of the external, often highly biased thinking. This center can constantly raise the awareness for innovation and highlight the drivers, capabilities and resources needed for growth and wealth. These centers need to translate the needs of “the know-how and why” out into the market as opportunities to pursue. The market needs to determine, detect and explore these.

Proactive Innovation Needs to be Channelled Through Entrepreneurs.

Innovation is considered one of the few proactive strategies available to promote wealth and growth. It does need organizing; it cannot be left to chance. It is working on the connectivity points; to reduce often abstract agenda’s and turn them into tangible opportunities. We need to make the approaches and thinking around innovation as coherent, accessible and open as possible.

At the heart of any future within innovation is the entrepreneur and the ability of nations to succeed in today’s environment of ‘stagnation’ is to provide the environment for these new entities and smaller ideas -rich ones to grow. Joseph Schumpeter talked about ‘creative destruction’ many years ago, back in 1942, that applies even more in today’s world. Creative destruction resulting from innovation and entrepreneurship is the force that creates sustainable long-term economic growth.

Schumpeter concluded that radical innovation can lead to a better society but it is the way you interpret this will determine the winners from the losers. In Europe the entrepreneur exploits existing structures whereas that shinning beacon of entrepreneur activity lying in Silicon Valley and in a number of other innovation hot spots of the USA seem to have a greater appetite for radical change. This has its consequences and its attractions. Venture capital has its concentration in the US; failure is not only tolerated but talked about as a learning point, a certain badge of honor even. In much of the rest of the world failure is a heavy stigma that constrains and is often judged harshly by society.

The USA Has the Inbuilt Structure and Capabilities, Only if it simply would realize it and execute on a given (and agreed) plan but will they ‘grasp’ it?

If the US was to really study its emerging innovation activity, the value of entrepreneurs and small business holders to the economy and job creation (yes, really), and bring together that ‘collective learning curve’ of all the positive forces to facilitate entrepreneurs and SME growth it would have such a economically powerful lift to its current milaise. The difficulty is the activity undertaken in the Entrepreneur sector is often not captured, so it is never really methodically enhanced upon, support only is provided in piecemeal fashion, not in a comprehensive roadmap.

If only policymakers could realize the potential of supporting entrepreneurs fully, it has its new launching point to the future. Equally it can quickly position itself as the vibrant ecosystem ‘core’ for innovation start up and acceleration.

The US has most, if not all of the factors needed in place, it just needs a collective recognition of what it has, what it can provide and that is simply, going back to what America use to do best; to provide the best possible conditions to pioneer, to explore, to extract, to venture forth and simply innovate. It is through the recognition that the small business is the economic generator of jobs and through recognizing and then intensifying the factors needed that would then allow entrepreneurship to flourish there would be a real path to growth and fresh economic activity.

Reigniting that American dream

The American dream is still around, it is still part of the make up and often the American gets highly caught up in the adventure, that pioneering need; innovation can certainly feed that ‘desire’. This is a great trait to have, willingness to have a go. This time to reignite this desire it has to recognise that it (the US) needs to move across a new innovation landscape or prairie, a global one, where entrepreneurs are free and able to roam where they want to, for those best ‘feeding grounds. This is where the US can grasp and firmly anchor entrepreneurs in their backyard as it has nearly all of the enablers and through this ‘anchoring’ it might help transform its economy back to an engine of value and real worth built back on that currently lost entrepreneur ‘spirit’ it has been in the past famous for.

To do this policy needs to ‘anchor’ everything that entrepreneurs require and seek to protect this by all the means possible, not in protective practices but in proactive practices and stimulus. Clear the current innovation ‘wood for the trees’ so it can then allow the emerging best to grow tall and give the new growth needed for the ‘ecosystem’ it will attract around it.

This was originally submitted and published in http://www.innovationexcellence.com for their topic of the month. Some modifications have been made for this seperate post.

Hard times need a plan, based on what-survival?

I was looking through some ‘sage’ advice from McKinsey on managing in a crisis, in really hard times, and one really got me thinking, so I thought I’d share this.

“Use the hard times to concentrate on and strengthen your competitive advantage. If you are confused about this concept, hard times will clarify it.

Competitive advantage has two branches, both growing from the same root. You have a competitive advantage when you take business away from another company at a profit and when your cash costs of doing business are low enough that you survive in hard times.”

This challenged my thinking of competitive advantage but then again hard times certainly do questions all our thinking. I always felt it was the uniqueness within, in what you offered, that separates you from your competition. This alters that perspecitve.

It seems this piece of advice boils down to the hard dollar gained by showing advantage within the market place- where it really counts, in fighting for every sale by being able to make a profit or simply cover your costs to simply keep going.

Isn’t innovation simply stripped away here-lost, forgotten, ignored, abandoned? Just thrown overboard along with any branding and this seems so stark or am I missing something here? What happens when markets come back? Maybe you have survived and you pick up the pieces. Do you agree this is where competitive advantage lies?

Perhaps this is ‘creative destruction’ and ‘innovation productivity’ in its rawest form? See my recent article on ‘seeking innovation productivity through creative destruction’ on this.

Any thoughts?

Making the first crucial steps towards innovation renewal

Firstly you have to start out with why you feel a freshening up should be required, should this be radical, distinctive or incremental. What do you actually want to achieve that takes you closer to your aspirations, not just immediate goals? Can the way you conduct innovation today meet that strategic challenge? Does it ‘advance’ on your current position?

There are a host of reasons ‘renewal’ might be needed. Today, when markets are especially tough, looking long and hard at what you have and jettisoning what you don’t need becomes essential to reposition yourself as leaner and more flexible. There are many pressing needs why you have to ‘shape up’. Don’t ignore the need for renewal.

Meeting competition in today’s market or positioning for the ‘forces’ swirling around global competition as it constantly changes the fortune for many does not simply arrive announced. You need to be prepared, to be alert, and to be agile and fit. We have to create our right environment and now is the time to question many of the ‘established’ approaches. We need to challenge them with fresher, more up-to-date thinking based on the multiple changes taking place around us constantly as much in our markets is certainly becoming more ‘fluid’, so renewal needs to be thought through irrespective.

Renewal needs some thinking through; here are some important referencing points:

  • If you have placed innovation at the heart of generating any new growth, it becomes important to determine that all your energy gets focused, really focused on those areas that offer growth through new activities (products, services etc). Innovation needs to become a core capability. This cannot be simply determined or approached in any half-hearted way. It means ensuring that you achieve an absolute alignment of innovation to the strategy and don’t simply brush over existing weakness or vague possibilities, sweep them away.Be laser-focused on what and which innovation generates growth that meets your stated strategic needs and drive that through the pipeline.
  • You must also make that important first step of a ‘hard’ assessment that evaluates your current position, question even the sacred cows. Build this understanding not just on internal observation but on external evaluations- talk to customers, to trusted contacts. Separate opinions and facts, highlight potential weaknesses, and look to rapidly address these. Achieve as clear a picture as you can, then set about the aspects that need renewal.
  • Managing through innovation change needs a clear, dedicated focus in clarifying plans, thinking through new systems and practices. You need to commit to training and constant support, providing feedback and managing the inherent stress this can cause. You need to provide the building blocks of commitment and shared identification. It takes time and recognizing that this also requires a ‘sustaining innovation engine’ that needs well resourcing and built into your thinking.
  • Innovation regeneration needs setting new visions, new directions and goals, providing essential resource and support to promote new culture and capabilities needed. You need to construct the appropriate action plans, track results, update and re-adjust from fresh knowledge and learning so these begin to restore a growing sense of identity and corporate value and building the communication plans to cascade these throughout the organization. Let everyone feel, hear and see the changes- to wake up and ‘smell the roses’.
  • Plan any cultural or structural shifts so as to provide the learning platforms for investing in new competencies and skills that place a ‘premium’ on acquiring this new knowledge as essential to learn and needed to be adopted as new approaches. Use the practice of open consistent communications and a networking approach that identifies, informs and promotes the emerging vision of why we need to do innovation differently. Why we need to renew.
  • Focus your energies on those crucial aspects of the business that constantly assesses, realigns, restructures and redeploys around the three critical aspects of knowing and leveraging your core business through your innovation offerings: a) making the customer the centre of your thinking b) fixing your products and service quality and responding at the new innovation speed expected, c) to build increasing agility, flexibility and anticipation that is required to meet the new market needs. The customers’ needs become the centre of your renewal efforts.
  • Seek out those pockets of resistance that are constantly just below the surface or even deep seated, address the critical issues through a change resistance grid and resolve the obstacles through a variety of methods and techniques with a real sense of urgency. Address this clearly and squarely so any renewal can begin to gain the momentum it requires.
  • Crafting the story in a clear, logical way will gain that greater identification and commitment. Explaining that our future is not waiting for others, but we have to place our innovation destiny in our own hands by renewing ourselves on our terms so at least the majority of people begin to recognize renewal as necessary to meet the future.

There is always a need for making the case for renewal and charting the path towards the solutions is no different than any other corporate initiative. Making change is hard, really hard. Calling for ‘renewal’ sometimes makes it even more difficult to gain the required identification when many are comfortable in the present ‘ways’.

The rewards come through an organization that emerges from today’s ‘uncertainly’ equipped to be more resistant, flexible and agile. It has a greater chance to seize emerging opportunities quicker, at tomorrow’s new innovation speed. Renewal is not an easy journey, but becoming more and more critical to do on a regular basis.

Seeking Innovation Productivity through Creative Destruction.

The whole issue of innovation productivity is getting more and more one of the key arguments for re-gaining economic growth. The problem becomes the real impact of ‘creative destruction’ that can often go with this.

I recently wrote in a blog (http://bit.ly/mXZjC3 ) called ‘the Risks of Dampening down Innovation Productivity” that with contracting economic performance, innovation performance suffers as well. I’d like to look at a few of the hidden or even darker sides to this, not because it is simply a Monday blues sort of thing, but there are growing implications if we don’t clarify why ongoing innovation investment is really needed and what it can often cost on society.

The tough economic times we are presently facing

We are faced with some tough times; markets are contracting, business performance is struggling to maintain its previous levels, there is increasing argument we are heading for a double dip recession, although I feel we are already in this. Jobs are tough to hold onto and even harder to find.

Presently economic policy is driven by the need to hang on to what we have got. Is this the right approach?  Does this really deliver a growth strategy that generates new jobs or simply try to hold onto the ones we have? Many people feel the later and anyone in a job that feels vulnerable or concerned for their immediate future, welcomes any economic stimulus that helps protect them.  The concern though is the ill wind we all feel, blowing in from the east and its global competition effect requires us to become more productive to compete. We can’t stagnate. We can’t simply tread water.

We need a clear set of growth strategies not just stimulation packages

For a growth strategy, needed for attracting new jobs it is going to be tougher, far more politically unattractive. Many of the bigger organizations recognized within our economies are already part way into a risk-adverse approach, not really experimenting or pushing aggressively for new growth opportunities that involve higher than normal investments.

Talking around a number of different issues and opportunties recently with Drew Marshall of Primed Associates (http://thinkprimed.com), he further confirmed that it seems ‘Scarcity’ has become something of a touchstone conversation with organizations recently; even those sitting on large capital reserves are framing all their innovation efforts in this context. Large ‘chunks’ of the economic stimulus being announced in different countries presently will go into these organizations, to further strengthen their balance sheets but to create new jobs is more questionable. Scarcity can be viewed in many ways- of markets, of opportunities, of qualified people, of fresh capital, informal panic, reacting to worrying news by reducing activities.

There is a strong argument for a more dynamic growth distribution.

Innovation calls for strong experimentation, for investment, for seeking out new bolder opportunities. If we lose this real investment appetite for innovation, we lose our business dynamism and productivity growth. Economies become increasingly ‘static’, the organizations that were inefficient either have to change their ways to expand their current capabilities, or shrink and exit.

It is the increased competitive pressures of a ‘stalled’ economy in the West, increased global competition that will create this further disruption.  If everyone hangs-in and settles for a shrinking share of the markets we simply lower the productivity growth as investments get cut back, saving are sought out and then offers of economic stimulus support are gratefully taken to help in this. All of this ‘negative’ activity creates longer term prosperity problems. We ‘play’ into someone else’s’ hands who are making appropriate investment and we simply can’t afford to do that.

Creative destruction comes in many different forms

  • Policies that support ‘selective’ industrial policies skews existing producers interests even more and often at the expense of the consumer. In a global economy others that are better equipped, more modern, more efficient can make a more competitive offer. If your selections for support are really subsidised favours you often don’t improve the competitive climate, only ‘healthy’ competition really does that. If you don’t invest in advancement and keep active in offering consumers improvements (not necessarily lower prices) you lose market share…..eventually. Others see these times as opportunities and invest appropriately.
  • Ploughing increased investment in R&D also has a very limited short term effect. The horizons from research are longer in distance than the immediate need. By offering for example economic credits to R&D has value in the longer term but less for immediate impact. It is the value of deepening the intangible capital that need the focus but ‘stimulus packages’ don’t target the specifics just often the generalities.
  • When we invest and support a number of our less than dynamic industries we are passing up the chance to invest in the future. New high growth firms account for a disproportionate share of job creation and can have up to a 2.5 multiplier effect over three years. Of course these firms are contributing small economic share to the economy but are the very seeds of our future. We need to accelerate the entrepreneurial climate, not hold it back by starving it of capital or its share of any stimulus package. Policies tend to favour the ‘mature’ not the young at heart.
  • The more we can support organizations willing to invest in innovation activity, the more the uneconomical ones in the same industry shrink, this adds growth and new economic activity that is a much healthier position. This enables organizations to withstand and re-equip for this increased growing global competition but this does comes at a price of disruption. We need a greater ‘selective’ survival of the fittest otherwise we prelong the organizations that actually create a drag on the industry they operate within. We do need real Darwin-ism here not prelonging inefficiencies.
  • As increasingly more calls will be made for deeper structural reform and reducing barriers to trade even further, you will get growth but at a cost, the cost of destruction of many of the existing organizations. Greater disruption and increased uncertainty.
  • This has its ‘knock-on’ effects, the ones that become even more politically unpalatable; the shifting job market where people and their families get uprooted, in search of a new job.
  • Society is facing a tough set of challenges- if organizations do not innovate, create new growth, new products and compete effectively we fail to get what some call ‘creative destruction’.
  • It is the need for rapid diffusion of new technologies, new methods and designs that facilitates ‘creative destruction’ as it equips those that invest with the ‘capital’ to compete better.
  • Livelihoods, established communities, institutions and economic security all get caught up in these tough decisions that have an inevitable occurance for many, at some time. Seeing destruction is extremely hard when it has these very personal impacts on our lives and politicans often get caught in the middle.

Subsidies, tax credits and lower taxes it is argued never quite generate the solutions promised.

There can be both ‘productive’ and unproductive churn taking place.

The need of any crafting of policy in times like these, is to look well beyond the ‘knee-jerk’ effect, we need to have clear job creating purpose underlying economic stimulus. Innovation needs to be clear, is it the means to economic ends? More jobs, better jobs, greater productivity. The answer is yes but the real-world trade offs do have higher destruction than we often want.

Sometimes innovation in the short term is neither giving us societal or economic good.  I recall recently an article by Michael Schrage where he suggests innovation has “perverse and unpredictable impact on nations and employment.” He points out “innovation comes with risk and costs attached.” Innovation ensures creative destruction.

We seemingly need innovation in all its different forms and we need to continue to invest in it, otherwise we reap the cost for even more destruction. We are facing much uncertainty as we see these job losses continue from many less than ideal organizations simply shedding to survive.

It is through appropriate investment in innovation productivity we can see the rise and potential for growth. We are travelling down a hard road at present with social and political costs. Managing innovation investment correctly today is critical but it has to be continued, even with all the disruptions it provokes. As Michael Schrage poses in his conclusion in his article “what kind of growing economy do we want to have?” We sometimes pay a high price for innovation.