[Ip-health] Economist: Something new under the sun

Fri Nov 2 13:10:49 2007

<SNIP>

Mr Page, co-founder of Google, had earlier hosted a gathering of
leading environmentalists, political thinkers and energy experts to
help shape an inducement to get things moving: the Automotive X Prize,
to be unveiled in early 2008. The organisers will offer at least $10m
to whoever comes up with the best =93efficient, clean, affordable and
sexy=94 car able to obtain the equivalent of 100 miles-per-gallon using
alternative energy. The charitable arm of Mr Page's firm has already
taken hybrid petrol-electric vehicles, like the Toyota Prius, and
turned them into even cleaner =93plug in=94 versions which can be topped up
from an electric socket.

Mr Khosla believes clean cars, using advanced biofuels or other
alternatives, will come about only through radical innovation of the
sort that Big Oil and Big Autos avoid. Risk and acceptance of failure
are central to innovation, he argues, but the dinosaurs typically avoid
both. =93Big companies didn't invent the internet or Google, and much of
the big change in telecoms also came from outsiders,=94 he adds.

<SNIP>

According to popular notion, innovation is something that men wearing
white coats in laboratories do. And that's the way it used to be.
Companies set up vertically integrated R&D organisations and
governments fussed over innovation policies to help them succeed. This
approach had successes and many companies still spend pots of money on
corporate research. But firms are growing increasingly disenchanted
because the process is slow and insular. A global study across
industries by Booz Allen Hamilton, a consultancy, even concluded that
=93higher R&D spending doesn't ensure better performance in terms of
growth, profitability or shareholder returns.=94

Now the centrally planned approach is giving way to the more
democratic, even joyously anarchic, new model of innovation. Clever
ideas have always been everywhere, of course, but companies were often
too closed to pick them up. The move to an open approach to innovation
is far more promising. An insight from a bright spark in a research lab
in Bangalore or an avid mountain biker in Colorado now has a decent
chance of being turned into a product and brought to market.

http://www.economist.com/specialreports/PrinterFriendly.cfm?
story_id=3D9928154

Something new under the sun
Oct 11th 2007
 From The Economist print edition

Innovation, long the preserve of technocratic elites, is becoming more
open. This will be good for the world, argues Vijay Vaitheeswaran
(interviewed here)

=93A CRISIS is a terrible thing to waste,=94 Vinod Khosla laments to Larry
Page. The two Silicon Valley luminaries are chatting one evening at the
Googleplex, the quirky Californian headquarters of Google. The crisis
which Mr Khosla is concerned about is caused by carmakers' addiction to
oil and the consequent warming of the planet. =93The energy and car
industries have not been innovative in many years because they have
faced no real crisis, no impetus for change,=94 he insists.

The two are plotting what they hope will be the next great industrial
revolution: the convergence of software and smart electronics with the
grease and grime of the oil and car industries. Mr Khosla is kicking
around his plans for getting =93chip guys=94 together with =93engine guys=
=94 to
develop the clean, software-rich car of the future. Such breakthroughs
happen only when conventional wisdom is ignored and cross-fertilisation
encouraged; =93managed conflict=94, in his words.

Mr Page, co-founder of Google, had earlier hosted a gathering of
leading environmentalists, political thinkers and energy experts to
help shape an inducement to get things moving: the Automotive X Prize,
to be unveiled in early 2008. The organisers will offer at least $10m
to whoever comes up with the best =93efficient, clean, affordable and
sexy=94 car able to obtain the equivalent of 100 miles-per-gallon using
alternative energy. The charitable arm of Mr Page's firm has already
taken hybrid petrol-electric vehicles, like the Toyota Prius, and
turned them into even cleaner =93plug in=94 versions which can be topped up
from an electric socket.

Mr Khosla believes clean cars, using advanced biofuels or other
alternatives, will come about only through radical innovation of the
sort that Big Oil and Big Autos avoid. Risk and acceptance of failure
are central to innovation, he argues, but the dinosaurs typically avoid
both. =93Big companies didn't invent the internet or Google, and much of
the big change in telecoms also came from outsiders,=94 he adds.

Coming from almost anyone else such talk would sound preposterous. But
Mr Khosla and Mr Page are not ordinary businessmen or armchair
revolutionaries. Mr Khosla helped to found Sun Microsystems, a
path-breaking information-technology firm, and he went on to become a
partner at Kleiner Perkins, a venture-capital company that was an early
backer of Amazon.com, America Online and many other pillars of the
internet economy. Mr Page's Google is one of the internet's biggest
success stories. At 34 he is a multi-billionaire.

But these men are from Silicon Valley; and Silicon Valley is not
America. It is tempting to dismiss such breathless talk of revolution
as just more hype from people who are seeing the world through Google
goggles. After all, go beyond the rarefied air of northern California
and the rules of gravity are no longer suspended. The well-established
industries which they mock still move at their usual but reliably
glacial pace, right?

Well no, actually. Rapid and disruptive change is now happening across
new and old businesses. Innovation, as this report will show, is
becoming both more accessible and more global. This is good news
because its democratisation releases the untapped ingenuity of people
everywhere and that could help solve some of the world's weightiest
problems.

The seditious scene from the Googleplex also captures the challenge
this presents to established firms and developed economies. For ages
innovation has been a technology-led affair, with most big
breakthroughs coming out of giant and secretive research labs, like
Xerox PARC and AT&T's Bell Laboratories. It was an era when big
corporations in developed countries accounted for most R&D spending.

North America still leads the world in research spending (see chart 1),
but the big labs' advantage over their smaller rivals and the
developing world is being eroded by two powerful forces. The first is
globalisation, especially the rise of China and India as both consumers
and, increasingly, suppliers of innovative products and services. The
second is the rapid advance of information technologies, which are
spreading far beyond the internet and into older industries such as
steel, aerospace and carmaking.

What is innovation? Although the term is often used to refer to new
technology, many innovations are neither new nor involve new
technology. The self-service concept of fast-food popularised by
McDonald's, for instance, involved running a restaurant in a different
way rather than making a technological breakthrough. However,
innovation can involve plenty of clever gadgets and gizmos.

One way to arrive at a useful definition is to rule out what innovation
is not. It is not invention. New products might be an important part of
the process, but they are not the essence of it. These days much
innovation happens in processes and services. Novelty of some sort does
matter, although it might involve an existing idea from another
industry or country. For example, Edwin Drake was not the first man to
drill for a natural resource; the Chinese used that technique for
centuries to mine salt. But one inspired morning in 1859, Colonel Drake
decided to try drilling for oil in Titusville, Pennsylvania. He struck
black gold and from his innovation the modern oil industry was born.

The men in white coats

The OECD, a think-tank for rich countries, says innovation can be
defined as =93new products, business processes and organic changes that
create wealth or social welfare.=94 Richard Lyons, the chief =93learning
officer=94 at Goldman Sachs, an investment bank, offers a more condensed
version: =93fresh thinking that creates value=94. Both hit the nail on the
head, and will serve as the definition in this report.

According to popular notion, innovation is something that men wearing
white coats in laboratories do. And that's the way it used to be.
Companies set up vertically integrated R&D organisations and
governments fussed over innovation policies to help them succeed. This
approach had successes and many companies still spend pots of money on
corporate research. But firms are growing increasingly disenchanted
because the process is slow and insular. A global study across
industries by Booz Allen Hamilton, a consultancy, even concluded that
=93higher R&D spending doesn't ensure better performance in terms of
growth, profitability or shareholder returns.=94

Now the centrally planned approach is giving way to the more
democratic, even joyously anarchic, new model of innovation. Clever
ideas have always been everywhere, of course, but companies were often
too closed to pick them up. The move to an open approach to innovation
is far more promising. An insight from a bright spark in a research lab
in Bangalore or an avid mountain biker in Colorado now has a decent
chance of being turned into a product and brought to market.

So why does the generation and handling of ideas matter so much? =93We
firmly believe that innovation, not love, makes the world go round,=94
insists John Dryden of the OECD. Corny perhaps, but studies do show
that a large and rising share of growth=97and with it living
standards=97over recent decades is the result of innovation (see chart
2). Innovative firms also tend to outperform their peers. =93We're not
discovering new continents or encountering vast deposits of new
minerals,=94 Mr Dryden adds. Indeed, the OECD's experts believe that most
innovation has been caused by globalisation and new technologies.

Analysis done by the McKinsey Global Institute shows that competition
and innovation (not information technology alone) led to the
extraordinary productivity gains seen in the 1990s. =93Those
innovations=97in technology as well as products and business
processes=97boosted productivity. As productivity rose, competition
intensified, bringing fresh waves of innovation,=94 the institute
explains.

That is why innovation matters. With manufacturing now barely a fifth
of economic activity in rich countries, the =93knowledge economy=94 is
becoming more important. Indeed, rich countries may not be able to
compete with rivals offering low-cost products and services if they do
not learn to innovate better and faster.

But even if innovation is the key to global competitiveness, it is not
necessarily a zero sum game. On the contrary, because the well of human
ingenuity is bottomless, innovation strategies that tap into hitherto
neglected intellectual capital and connect it better with financial
capital can help both rich and poor countries prosper. That is starting
to happen in the developing worl

---------------------------------
Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
voice +41.22.791.6727
fax +41.22.723.2988
mobile +41 76 508 0997
thiru@keionline.org