By Peter Lindfield, published in the Telegraph-Journal 18th September 2012
The questions are familiar: why do some companies embrace innovative thinking and bring to market compelling new products and services, while others falter and are unable to compete? Why do companies and regions that were models of competitiveness fall to the wayside? Why do entrepreneurs succeed in some regions but struggle in others?
To government policy-makers, economists and business people who seek to support creativity and reap its benefits, these questions are of compelling and enduring interest.
Although there has been no shortage of effort to develop an overarching theory of innovation, there is no model with the necessary probative value and explanatory power to provide a reliable roadmap or blueprint for growth. But there are a substantial number of practical lessons that policy-makers and business managers can leverage today.
First, innovation thrives in ecosystems. For more than 30 years, Harvard University’s Michael Porter has elaborated on how regions around the world have become internationally competitive and how they possess common features of success.
His now-famous theory of national advantage places the elements of an ecosystem – firm strategy, demand conditions, factor conditions and related and supporting industries – at the centre of competitive capability. There are disagreements over whether Porter’s model is accurate, but the concept of competitive ecosystems has become embedded in the economic growth lexicon.
Second, innovation is more than hardware, machines and tools. Some of the most powerful industry success stories have been the consequence of process innovation.
Outsourcing, continuous improvement and data mining, among other process innovations, have revolutionized companies in every industry. Innovation is spurred when a powerful technology platform becomes widely used. The economic growth of nations today is inextricably linked to the adoption of information and communications technology.
Third, the drive to attract talent dominates industries and at two levels. Entrepreneurs are a critical factor in industry innovation but entrepreneurs alone are unproductive without the skills and ambitions of their workforce.
A key characteristic of competitive regions is not only that they attract the leading entrepreneurs that can become household names, but they are also a magnet for the supporting talent that entrepreneurs need.
In mature economies, skilled talent has become mobile, seeking the best environment in which to thrive and become prosperous. Companies must think beyond boundaries to make investments in creative talent sourcing practices, develop global talent competencies and cultivate the powerful employer brands with which their employees can identify.
This means that corporate culture is critical to the retention of employees who have other options.
This has profound implications for many regions. Every industry is caught in a global squeeze for people.
Finally, consistent government support matters. The intersection of innovation, policy and investment has always determined the rate at which economies advance.
For Porter, the appropriate role of government is encouraging companies to raise the performance of firms. Governments achieve this by enforcing strict product standards, fostering early demand for advanced products and stimulating local rivalry by encouraging competition and limiting direct co-operation.
But governments increasingly are constrained by high levels of debt and the rising costs of entitlements, such as health care, education and social welfare. In the absence of raising taxes, which may discourage investment, governments will need to balance debt-reduction measures with expenditures to support growth.
This puts high-debt regions at a disadvantage, at least until their debt levels recede.
Governments additionally are subject to the effects of ‘time compression diseconomies,’ a term coined by INSEAD professors Ingemar Dierickx and Karel Cool: when an organization tries to compress substantial effort and growth into a short time frame, it will not be as effective as when that effort is distributed over a longer period of time.
Consistent effort over a long time frame has been shown to pay dividends. But this approach runs headlong into the challenge of how much time is available before it is too late.