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Some Very Disconcerting News about Innovation........
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Impending Business Crisis as
Balance of Innovative Power Shifts
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Like a Tsunami, a major crisis is headed our way, and we must act quickly if we are to head off the impact which will peak in 10-15 years.
Since the middle 1700s, America’s competitive advantage has been based on a strong work ethic coupled with a powerful dose of ingenuity. The shift of global power from Europe to American shores was not just based on a growing population and land to grow crops, but also our ability to be the center of creative power – in our inventions, our companies, and in our ability to give the teaming masses of immigrants landing on our shores the access and mobility to institutions of learning and productivity.
Unless we take swift and direct action, the fundamentals of our strength are ready to be superseded by forces we have never experienced before – the simultaneous shift of both economic and innovative power to the Far East
What has always been taken as a divine grant is in serious jeopardy, as the articles below readily point out.
Sadly, the state of innovation is not strong in America, despite efforts to keep it alive. The three decades of acquisitions have singularly killed massive amounts of innovation in the acquired companies. And in all-too-many large corporations, innovation is nothing more than a platitude, something relegated to the “important but not urgent” status of a “nice to talk about” issue.
What We Can Do
But there is a way forward. We can:
- Do better with what we have, becoming better at collaborative innovation and using alliances more extensively
- Focus more on the non-technical dimensions of innovation that does not require an engineering degree:
- Systems Solutions
- Product and Service Improvements
- Process Innovation
- Market Extensions & New Business Models
- Make Innovation an “Urgent” priority, setting up real innovation programs and giving responsibility and rewards for innovation
- Create Innovation Architects in our universities who now how to stimulate innovation and create the right innovative culture in organizations
In short, there are ways to combat technological innovation with other types of innovation approaches. But it takes strategy and leadership to do it. Otherwise, we are in for a long, withering siege, with little hope of winning, as the following articles illustrate:
From Investor’s Business Daily
Technology Companies, Scientists, Engineering Societies, and Educators are worried that there will not be enough scientists and engineers for the predicted growth ahead, according to a Jan 5th, 2006 report in Investors Business Daily.
U.S. Falling Behind China, India for New Engineering Graduates
Top Students shy away from the hard sciences; tech firms fear impact January 5, 2006 by Laura Mandaro
“Without an adequate and growing supply of computer, math and engineering gradutates, the U.S. will lose its current edge over emerging foreign tech centers as bases for creting new software, breaking ground on new tech innovations, and ultimately, producing more jobs,” stated Ms. Mandaro.
“We face increased global demand for highly skilled scientists and engineers, at a time when American Students seem to be walking away from careers in science and engineering,” said National Science Foundation Director Dr. Arden Bement.
Chinese engineering students comprise 40% of all university graduates: over 20% of the worldwide graduates. In stark contrast, in the U.S. only one graduate in 20 selects engineering at the undergraduate level. In the brief two year period from 2000 to 2002, freshmen intending to major in computer science fell from 16% to 9.6%.
Companies like Microsoft, Intel, and Cisco Systems are making major investments in India to secure research and development capabilities. Some are investing in R&D centers, others are investing in small start-up companies. In the recent past, companies went to India and China to secure low cost labor. But they are investing in those companies to retain innovation flows.
From USA Today
Cutback in R&D spending raises Red Flag
By Matt Krantz | Oct 13, 2005
Are companies squandering the future keeping their shareholders happy?
While third-quarter corporate profits, being reported now, are expected to soar an additional 15% compared with the year-ago quarter, companies are shoveling much of their fat cash flows back to investors through dividends and share buybacks. In the process, research and development, better known as R&D, is being ignored.
Companies spent slightly less on R&D as a percentage of revenue in the second quarter than they did a year ago, according to a USA TODAY analysis of Capital IQ data, looking at members of the Standard & Poor's 1500 index. Spending on R&D by companies in the benchmark S&P 500 index has grown 3.3% over the past four quarters, well below the 11.6% growth in revenue during the same period, S&P says.
Meanwhile, the dollar value of stock buybacks and dividends, two ways to return cash to shareholders, jumped 92% and 13%, respectively, in the second quarter, says Howard Silverblatt, market analyst at S&P.
The lackluster R&D spending concerns some. Companies "are going to have to increase sales, and to increase sales, they are going to have to increase other things like R&D," Silverblatt says.
One reason companies are R&D averse: They fear investor retribution. In a reversal from the late 1990s, when dividends were dissed and companies couldn't spend enough on R&D, investors now want executives to return cash to them, says Jim Paulsen, strategist at Wells Capital Management. Investors and executives fear R&D spending is "being thrown down a rat hole," Paulsen says.
A new study by consultant Booz Allen Hamilton encapsulates these fears. It found that big R&D spenders don't get returns on their outsized investments and that R&D spending has no effect on growth, profitability or shareholder return. R&D is "a roll of the dice of what you will get back," says Barry Jaruzelski, vice president of Booz Allen and co-author of the study that looked at 1,000 companies going back six years.
But Paulsen says the study's methodology is flawed because it began measuring the effectiveness of R&D spending right when it was peaking and the economy tanked. Tracking the yield of R&D spending back 30 or 40 years would likely have contrary results, he says.
But while R&D spending has been soft, it's probably not as weak as it appears, says Ron Freedman, CEO of R&D tracker Research Infosource. He says many companies are adding R&D units overseas, so they're getting more research capacity for less money.
Paulsen thinks companies will resume R&D spending. "Unless (the economic) recovery dies on its own," Paulsen says, "at some point, companies will say maybe this is OK" to spend on R&D.
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May 1, 2006
