Innovating the Future

Stephen DeAngelis

July 02, 2009

One of the frequently asked questions about the U.S. stimulus package centers on new jobs: Where are they? States like Michigan are shedding jobs so fast that even its high-powered campaign to attract businesses to the state can’t keep up [“Michigan Works to Remake Itself Without King Auto,” by Bill Vlasic and Nick Bunkley, New York Times, 9 June 2009]. “About 800,000 jobs have been lost in the state about one in every six — since 2000,” reports Vlasic and Bunkley, “and its unemployment rate has reached 12.7 percent, higher than any other state.” Michigan is trying to attract high tech businesses through a high-powered ad campaign and it is investing heavily in retraining laid-off workers. In other words, rather than trying to save dying businesses Michigan is trying to establish conditions that will make it stronger in the future. From the beginning of this current economic crisis, I have supported the idea that government’s primary role is to establish conditions favorable for entrepreneurs. New York Times‘ columnist Steve Lohr reports that more and more governments are exploring the best role for them to fill [“Can Governments Till the Fields of Innovation?” 20 June 2009]. He writes:

“Governments are increasingly wading into the innovation game, declaring innovation agendas and appointing senior innovation officials. The impetus comes from two fronts: daunting challenges in fields like energy, the environment and health care that require collaboration between the public and private sectors; and shortcomings of traditional economic development and industrial policies. Innovation policy, to be sure, is an emerging discipline. It lacks crisp definitions or metrics.”

I favor public/private partnerships, especially in emerging market countries; but the balance between what should be public and what should be private is not an easy one to achieve. Many government leaders, including those in the Obama administration, are coming to believe that innovation and entrepreneurship are critical for a brighter future. According to Lohr, the Obama administration has directed “the Bureau of Economic Analysis to develop statistics that ‘uniquely measure the role of innovation’ in the economy. And the government’s new chief technology officer, Aneesh Chopra, speaks of building ‘innovation platforms’ to spur growth.” The focus of Lohr’s article was a workshop about innovation policy for government leaders “organized and moderated by John Kao, a former professor at Harvard Business School and founder of the Large Scale Innovation. … The main participants were innovation-policy practitioners from nine countries: Australia, Brazil, Britain, Chile, Colombia, Finland, India, Norway and Singapore.”

“Innovation policy is an attempt to bring some coordination to often disparate government initiatives in scientific research, education, business incentives, immigration and even intellectual property. ‘It’s about setting an agenda and helping build a portfolio of skills that let an economy and a society move forward in smarter, faster ways,’ Mr. Kao said. Yet if the reach of innovation policy is broad, the attendees agreed, it is best done with a lighter touch than industrial policies of the past, which often focused on specific companies for government support. They used metaphors like ‘impresario’ and ‘orchestra conductor’ to describe government’s role. The ideal, they said, is ‘stewardship,’ not command and control.”

One of the things that governments shouldn’t do, participants believed, is pick winners and losers and then implement policies that favor the winners. Governments should “create the conditions so that new industries can rise more easily.” I couldn’t agree more. Every country, however, faces unique challenges and encouraging innovation that targets that challenge is also important. Lohr notes, for example, that Finland has the “second-fastest-aging society in the world, after Japan.” As a result, it is looking to for ways to encourage innovation in medical-related fields. Australia, faced with a harsh environment, is looking to “improve strains of drought-resistant wheat and cotton for export.” Boeing is also establishing an unmanned aerial vehicle (UAV) facility in Australia because UAVs can be tested without fear of running into something. India is supporting innovative industries that can export innovative technologies to the rest of the world, reversing the trend of having to import technologies from the developed world. Evidence that India’s strategy is working, Lohr claims, includes the “Nano automobile, and low-cost drugs for tuberculosis and psoriasis.”

America is still considered the world’s most innovative country; but, as I have written before, many people believe that it may be losing its innovative edge (for example, read my posts Another Slowdown to Worry About — Innovation?, America’s Competitive Edge and Fostering Innovation and Restoring America’s Competitive Edge). One writer questions the perception that America remains the world’s most innovative country. He believes that most fields of innovation have lain fallow for the past decade [“Innovation Interrupted,” by Michael Mandel, BusinessWeek, 15 June 2009 print issue]. Mandel writes:

“‘We live in an era of rapid innovation.’ I’m sure you’ve heard that phrase, or some variant, over and over again. The evidence appears to be all around us: Google, Facebook, Twitter, smartphones, flat-screen televisions, the Internet itself. But what if the conventional wisdom is wrong? What if outside of a few high-profile areas, the past decade has seen far too few commercial innovations that can transform lives and move the economy forward? What if, rather than being an era of rapid innovation, this has been an era of innovation interrupted? And if that’s true, is there any reason to expect the next decade to be any better? These are not comfortable questions in the U.S. Pride in America’s innovative spirit is one of the few things that both Democrats and Republicans—from Bill Clinton to George W. Bush to Barack Obama—share. But there’s growing evidence that the innovation shortfall of the past decade is not only real but may also have contributed to today’s financial crisis.”

Mandel reminds us of the optimism that preceded the bursting of the bubble. The U.S. appeared to be on the verge of an exciting and profitable era. Reality, however, didn’t keep pace with expectations.

“If the reality of innovation was less than the perception, that helps explain why America’s apparent boom was built on borrowing. The information technology revolution is worth cheering about, but it isn’t sufficient by itself to sustain strong growth—especially since much of the actual production of tech gear shifted to Asia. With far fewer breakthrough products than expected, Americans had little new to sell to the rest of the world. Exports stagnated, stuck at around 11% of gross domestic product until 2006, while imports soared. That forced the U.S. to borrow trillions of dollars from overseas. The same surges of imports and borrowing also distorted economic statistics so that growth from 1998 to 2007, rather than averaging 2.7% per year, may have been closer to 2.3% per year. While Wall Street’s mistakes may have triggered the financial crisis, the innovation shortfall helps explain why the collapse has been so broad.”

Having made his case for “innovation interrupted,” Mandel then provides a bit of cheer amid the gloom.

“Many of the technological high hopes of 1998, it turns out, were simply delayed. Scientific progress continued, the technologies have matured, and more innovations are coming to market—everything from the first gout treatment in 40 years to cloud computing, the long-ballyhooed phenomenon ‘information at your fingertips.’ The path has been long and winding, but if the rate of commercialization picks up, the current downturn may not be as protracted as expected.”

For the latest on cloud computing, see my post entitled Update on Cloud Computing. One of the innovative technologies that has languished for the past decade is tissue engineering. Mandel details the story of Organogenesis, a small company in Canton, MA. A decade ago the company developed the world’s first living skin substitute (called Apligraf) and had received FDA approval to sell it. Unfortunately, the tissue substitute cost more to produce than it could be sold for. The company went bankrupt. Skip forward a decade, however, and things have changed. Geoff MacKay, the new CEO of Organogenesis, has straightened out the company’s manufacturing, logistics, and sales, and has turned Apligraf into a moneymaker.

“Sales of Apligraf are growing at more than 20% per year, the company is taking over two more buildings on the same street in Canton, and it has FDA approval to install high-reliability robots from Japan’s Denso, the same supplier Toyota uses, he says. Employment is expected to climb from 350 jobs to about 600, the company is introducing products, and MacKay is talking about ‘cautious globalization.’ In other words, Organogenesis is fulfilling the promise of 1998—a decade later.”

Mandel claims you can “multiply that story a hundredfold and extend it to other areas.” One of those areas, he says, is “micromachines—miniaturized gyroscopes, pumps, levers, or sensors on a silicon chip—also known as MEMS (microelectromechanical systems).” A decade ago MEMS were the “next big thing” — or maybe not. That may be changing, however, Mandel reports that a company called WiSpry “is now about to start shipping MEMS chips that will go into cell phones, improving battery life and reducing dropped calls.” Another area of interrupted innovation has been the biotech sector. Mandel reports that “2008 was the first year that the U.S. biotech industry collectively made a profit, according to a recent report by Ernst & Young—and that performance is not expected to be repeated in 2009.” For more on the future of biotech, see my post entitled Biotechnology’s Third Wave.

“A December 2006 paper by the Brookings Institution, co-authored by Peter R. Orszag, now head of the Office of Management & Budget, observed: ‘Because the U.S. is at the frontier of modern technological and scientific advances, sustaining economic growth depends substantially on our ability to advance that frontier.’ The flip side: A shortfall in innovation could undercut growth and incomes, especially over a decade-long period.”

Orszag’s conclusion was correct. America’s economy lives on the future’s frontiers and its business leaders must boldly explore and advance those frontiers. Entrepreneurs are today’s Lewises and Clarks. One of the things that I preach to leaders of developing countries is that they must diversify their economies. America is no different. Mandel notes that “no industrial revolution in the past has been based on a single technology.” Any future economic revolution must be built on innovations in a number of sectors. Mandel concludes:

“The professor, trader, and author Nassim Nicholas Taleb calls technological breakthroughs ‘positive Black Swans’—unexpected events with huge positive consequences that in retrospect look inevitable. Some, such as Google, come out of nowhere to dominate within a short time. Others take years to mature and are surprising only because people forgot they were there. We’ve learned over the past 10 years just how unpredictable technology can be. But right about now, the U.S. could use a few positive Black Swans.”

Another BusinessWeek reporter, Reena Jana, discusses another decade-old idea that was once touted as the next big thing, automated innovation. She notes that the process turned out to be a dud for introducing new products, but “now it’s a sharp tool for cutting costs” [“Dusting Off a Big Idea in Hard Times,” 22 June 2009 print issue].

“Dozens of software companies are using algorithms once intended for product development to help corporations pinpoint ways to reduce spending. San Diego’s Natural Selection, a 16-year-old company that created the program used by Pfizer to try to auto-invent drugs, is helping clients streamline delivery routes and retrofit facilities. Among its recent customers: General Electric and the U.S. Air Force. Some of the original corporate participants in auto-innovation are back at it, too, including Pfizer and HP. HP’s adventures (or misadventures) in particular show how ideas that bombed at first can become valuable when given a second chance. ‘Successful innovations are often built on the backs of failed ones,’ notes Scott D. Anthony, president of business consultancy Innosight and author of a just-published book, The Silver Lining: An Innovation Playbook for Uncertain Times. ‘It makes sense to make it a regular practice to go back and see what pieces of rejected ideas might offer important tools if they can be applied in new ways.’ Like researchers at 3M and Google, staff scientists at HP Labs are urged to spend a chunk of their workweek on self-initiated projects. Evan Kirshenbaum, a computer programmer who has worked at HP since 1989 and holds more than 20 programming patents, began in early 1998 using his spare time on auto innovation writing code to combine and recombine snippets of ideas to discover new ones.”

In past discussions about innovation, I’ve noted that many innovators fill their offices with interesting gadgets that they’ve picked up over the years hoping that someday they will help inspire a new use of an old idea. Apparently old software code can serve the same purpose. Of course I’m interested in automated computer processes because they were what initially led to me found Enterra Solutions. They remain an important part of the business. Mandel’s and Jana’s articles offer a glimmer of hope that we sit on the cusp of a new outburst of innovation and progress. If true, it couldn’t come at a better time.