The Promise versus the Innovation

  • June 11, 2009
  • Scott

Business week recently put out a 4-page (on the web) article entitled “The Failed Promise of Innovation in the US“.

But after reading it, I can’t help but feel the failure was in the promises more than in the innovation.  The author (Michael Mandel) takes us back to 1998, and recounts some of the great expectations of that year – across a great number of industries – and then examines reality 10-11 years later.  The author finds our progress over the intervening years to be quite wanting, relative to the promises made in 1998.

Essentially I don’t find fault with his depiction of expectations (the Promise) in 1998, nor his description of the current-state reality.  But I think his assignment of “blame” or cause, is misplaced.  He seems to be saying that, in some fashion, the US has lost its “innovation mojo”, with some not-quite-determined cause for that.  The consequences of less innovation could be severe, as he rightly points out…

Here are a couple of the aspects of the last 10 years that the author has overlooked, which I think have a profound affect on the perception of innovation on the one hand, and on the actual pace of innovation on the other.

Is Perception Reality?

First, on the perception front.  I believe that the expectations of progress (Innovation) have a tendency to outstrip what reality can produce.  The reality is, innovation takes longer than people expect it to take to go from a successful lab experiment to something that we can connect with in daily life.  And the media is particularly focused on “lab” innovation, rather than the innovations that affect our daily lives.  I think this bias is because the innovations rampant in our daily lives don’t seem as dramatic and futuristic as the innovations that are bubbling in beakers in a cleanroom.  There’s something the big media companies love about showing footage of lab-coated or bunny-suited technicians titrating liquids in a gleaming lab. There’s a tendency to overlook more gradual innovation that is, in some cases, more remarkable.

Let’s take an example.  Look at Google’s iPhone and Android applications… you pick up your phone, ask it a question, it interprets your voice to understand what you’re searching for, and returns to you locale-based results, followed by more general results.  So if you pick up the phone and say “Italian Restaurants” the Google phone app will find Italian restaurants that are near you based on GPS coordinates.  The concept that SEARCH would yield this kind of innovation, in 1998, was unthinkable.  It certainly wasn’t part of our expectations for phones or for search at the time.  And so this kind of innovation gets short shrift from the author of the article.

The author spends a lot of his column discussing biotech – an area that requires an enormous amount of clinical trials before going to market.  In other words, regardless of how fast the “innovation” part of the engine is churning, there will be an enormous lag time between the lab and the real world.  Why?  Because of safety concerns.  Because we had some unfortunate drug safety mishaps with a whole category of drugs (pain relievers) that had side effects that could be deadly (heart problems primarily).   As the author points out toward the end of the article, there is a glut of biotech drugs about to hit the market – so it may appear that the next few years have an unusually high degree of biotech innovation, but in reality most of that work happened over the previous decade…

Another example from the author was Apligraf, with a skin replacement tissue that seemed groundbreaking.  Apligraf had problems with delivery, despite the fact that the product worked:  getting production ramped up, getting delivery of live tissue right, and getting costs down to make it competitive.  What the author failed to point out is that, during this same timeframe, another company, Lifecell, was achieving quite a bit of success with its products, in particular with AlloDerm and Strattice.  Lifecell was sold to KCI, but not before having a successful run as a public company (I should know, I made a little bit of money off of my Lifecell stock, thanks for the recommendation, Dad). The point here, is that even in specific categories we can cherry pick our data to argue either that innovation was great or that innovation was slow…

Other examples of how perception may not match reality?  Most Americans probably believe that American manufacturing is on the wane.  Employment in manufacturing is down year after year after year.  That part is true. But what most people don’t realize is that the US still is the largest manufacturer in the world… And that we actually manufacture more “stuff” now than we did in 1998.  We’ve just gotten less labor-intensive in our manufacturing businesses.

Even so, why wasn’t the reality of Innovation better?

Returning to the “actuals” front… to the extent that more innovation didn’t happen, why is that?

The author points out several valid reasons.  However, I think he overlooked something really important, specifically as it relates to one of the “innovation metrics” he uses: productivity.  Historically, innovation and improvement in productivity is a reaction to pressure.  The pressure that drives increased productivity might be competition- the company with the lowest cost often wins in the long run – and lower cost is either achieved by having cheaper labor or a more efficient (productive) operation.  When labor is scarce, companies focus on improving productivity.  But something happened between 1998 and 2009.  Large US-based multi-nationals discovered that, rather than improving internal processes and investing in productivity-enhancing capital equipment or software, they could move massive numbers of jobs from the US to Asia (India and China, largely).  A certain amount of innovation was enabled by the opening of labor markets overseas in combination with better (cheaper) telecommunications and internet connectivity – outsourcing of callcenters, IT, radiology, etc.

But it also stymied innovation at large corporations.  Largely they outsourced swaths of business (often IT), that were previously sources of innovation.  The quick win was to swap out expensive personnel for less expensive personnel (taking advantage of exchange rates, cost of living, etc.). This was true for skilled labor and for manufacturing.

However, we’re now seeing the glut in labor overseas evaporating.  Exchange rates are working against offshoring as the US Dollar gets weaker.  Skilled labor costs in India and China are considerably higher than they were in 1998, while labor costs in the US are relatively flat. Shipping costs are going up with higher prices of oil and gas.  All of this makes local production more important, and regardless of locale, a lack of additional units of cheap labor means that efficiency starts to look more important (as an aside, the author noted that lack of productivity improvement might have been a factor in why wages didn’t rise – but wages didn’t rise primarily because of a change in the supply/demand ratio more than because of a lack of productivity growth, in my opinion).

From where I’m sitting, BPM is the right way to focus our attention on where the efficiencies will come from.  Other technologies may be the keys to unlocking some of the efficiencies (for example, new capital equipment), but BPM techniques and process improvement techniques generally, can help us focus on the keys to the ROI kingdom.

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