Measurement and innovation

One of the underpinnings of any technologically advanced economy is the research infrastructure. That infrastructure is not just physical, but also intangible. One of those intangible pieces is our system of measurement. Accurate measurement is important for any technological innovation. With that in mind, the National Institute of Standards and Technology (NIST) is recently completed An Assessment of the United States Measurement System: Addressing Measurement Barriers to Accelerate Innovation:

The National Institute of Standards and Technology teamed with other organizations to assess the capacity of the nation’s scientific and technical measurement infrastructure – the U.S. Measurement System, or USMS — to sustain U.S. innovation at a world-leading pace.
The USMS is the complex network of organizations that develop, supply, use, and ensure the validity of measurements. This system spans from university laboratories to commercial testing services and from manufacturers and service providers to regulators and standards bodies.
Involving more than 1,000 people in industry, academia, and government, the assessment included a survey of 11 industrial sectors and technology areas. This yielded more than 700 measurement-related challenges facing U.S. industry today or impeding its progress toward the technologies of tomorrow.

You may not think that this is a real problem, but it is. As the NIST report points out, “software errors due to ineffective testing cost the U.S. economy $60 billion annually.” Likewise:

The United States spends more than $100 billion per year on measurements in health care, incurring
increased costs due to errors in measurement. For example, in a cancer screening trial participants
spent an extra $1,000 a year in medical expenses due to false-positive results.

The next steps will be to work with companies and universities to address those issues. Some of this work can be done as part of NIST’s ongoing mission. Other government agencies and laboratories will need to be involved in other parts. Still other areas may require more action by academia and/or the private sector.
However it is done, this is a great example of public policy adjusting to the shifting nature of the economy. The I-Cubed Economy is very different from the old Industrial Age – and we need new measurements to better understand the differences. I applaud NIST For leading the way. Now, let’s see if they get the resources to do the job.

Greatest Innovations

The consulting firm Doblin has come up with a list of The Greatest Innovations of All Time:
1. Weapons
2. Mathematics and the number zero
3. Money
4. Printing
5. Free markets and capital markets
6. Domesticated animals and agriculture
7. Property ownership
8. Limited liability
9. Participatory democracy
10. Anesthetics and surgery
11. Vaccines and antibiotics
12. Semiconductors
13. The Internet
14. Genetic sequencing
15. Containerized shipping
Personally I think they missed some – including language. But it is an interesting idea.
It is especially an interesting idea because many of the innovations are essentially intangibles – not technologies. For example, mathematics, free markets, ownership, limited liability, democracy are all intangible social inventions. Money has a physical manifestation – but it is essentially an idea.
So, lesson for today: when you think about innovation and national innovation policy, think about the full range of innovations (not just the next gizmo).

Enterpreneurship and competitveness

This is Entrepreneurship Week – and a host of studies are out.
Yesterday, the Kaufman Foundation held a Public Policy Forum on U.S Entrepreneurship and Innovation at which they discussed their latest paper: On the Road to an Entrepreneurial Economy: A Research and Policy Guide.
As I said at the meeting, the paper is a refreshing look at the state of entrepreneurial policy – refreshing in that it attempts to break from what I call the same-old, same-old mentality that permeates our policy debates. The paper rationally discusses the problems with university technology transfer, with the patent system and with corporate governance (among other topics). It may be refreshing because the authors actually talked to entrepreneurs – who pared down a large volume to those areas that entrepreneurs believed were really important. By the way, Kauffman is encouraging comments at the report’s webpage.
Also of note is the Council on Competitiveness’’ new report – Where American Stands: Entrepreneurship:

Building on the findings of its flagship Competitiveness Index, the Council on Competitiveness is releasing the first in a new series of reports on the high-impact drivers of U.S. innovation capacity and prosperity. Where America Stands: Entrepreneurship focuses on one of the most critical advantages for U.S. competitiveness. While U.S. entrepreneurial performance continues to lead the world by almost any measure, this report shows that other nations are catching up to the United States. The report also highlights that the U.S. environment for entrepreneurial activity faces its own challenges and opportunities in the 21st century.

Entrepreneurship Week runs through Friday with events all across the nation. For activities in your area, check their website.

India gets it

From BusinessWeek – India’s Designs on Innovation:

In India, design has never been a part of the business lexicon. Now, New Delhi wants to change that. This month, 40 years after setting up the National Institute of Design in Ahmedabad in the western state of Gujarat, the Indian government finally ratified a design policy to make the discipline a national priority.
To achieve this, the new policy envisages a “platform for creative design development, design promotion and partnerships across many sectors, states, and regions for integrating design with traditional and technological resources.”
Not only has the NID been deemed a university, the government wants to set up four more NIDs and make design a part of the curriculum in engineering and other educational pursuits. Finer details are still scarce, but with education as the key issue, it will bank on public-private partnerships to foster design.
So far, India has only a dozen design programs, compared with 241 in China. There are 300 design colleges in Korea, in contrast to India’s 10. While China churns out 30,000 design students annually, India produces just one-third of that number. And while Asia is increasingly becoming the hotbed of design, India is nowhere on the scene.

And where is the US national policy making design a priority for the American economy?

Trade deficit “good news”?

The New York Times is reporting the following “good news.”
Trade Deficit Peaks and Declines, but It Remains Huge – New York Times:

After years of deterioration, the United States trade deficit appears to have finally peaked and started to decline.
To be sure, the government reported this week that for all of 2006 the trade deficit in goods rose 7 percent, to a record $818 billion. But as a percentage of gross domestic product, the figure was virtually unchanged at 6.2 percent.
A sign of improvement is that exports of United States goods were up 14.5 percent in 2006, while imports rose 10.9 percent. It was the first time since 1997 that exports rose more rapidly than imports, and it was the biggest rise in exports since 1988.

However, if you look closely at the charts there is little to be optimistic about. Many have latched on to the fact that petroleum is a large part of the deficit. But as the chart shows, 2/3 of the deficit is non-petroleum. So even if we were completely in balance on oil, we would still be running about a $45 to $50 billion deficit every month — roughly 4% of GDP. Likewise China. If we had a balance with China, our goods trade deficit would still be $600 billion.
Trade theorists tell us it is wrong to focus on any one bilateral deficit – such as US-China. The way multilateral trade works, we are told, is a deficit with one country can be made up with a surplus in our trade with another. But, there is no region of the world with whom we are running a surplus — and very few countries.
Likewise, we are told that currency changes work. But look at our trade with the Euro zone (after a decline in the dollar versus the euro — see Trade Deficit Stubbornly Defies the Dollar’s Slide – New York Times). With that decline, our deficit has stabilized at $91 billion. We had to have a major decline in the dollar just to stop the acceleration of the deficit. How much further does it have to decline in order to get back to balance?
Nor will our intangibles and services trade help very much. Our services trade surplus is about a tenth of the total deficit (even though services make up about a quarter of our exports).
I would like to remain optimistic about our international economic position. Any improvement in the deficit is good – and any sign of hope should be celebrated. But we also need to be realistic. These are marginal changes at best.
There are massive structural shifts going on that we are still trying to understand. As a consequence, we are altering our perceptions of the world to fit the disconcerting facts. The old theory of self-correcting markets through exchange rates has given way to the new theory that deficits are sustainable. Thus, the debate is between those who think the problem will go away versus those who say we just need to fix the exchange rate problem, especially with China. Neither of these theories is helpful. We need a new theory of international economics in the I-Cubed Economy.
Anyone out there have any ideas?

Branding and advertising

And from Marc Gobé – Why Advertisers Still Don’t Get It – on the BusinessWeek Innovation blog:

It’s the Product, Stupid
Understanding what the consumers want and bringing solutions that will inspire them is the most powerful way to support any business strategy. Putting consumers and the product at the center of the equation is fundamental to a brand’s success. Design then becomes the message and the advertising, as it’s proof of a company’s commitment to people and to innovation.
A relevant and well-designed product will make its way into the world, will be spun across the blogosphere, will be sought after and endorsed in the most emotional fashion as a reward. Indeed, advertising needs brands more than the brands need advertising. When the commercial becomes more popular than the product, you really have a problem—not least that it doesn’t serve your brand long-term.
In Apple’s strategy, the product is the message and the only topic of the conversation. Similarly, the new Target drug packaging is the most talked about idea in the retail world at the moment, while Absolut Vodka is its own super-model. You buy a BMW because it’s a great experience. You wear Crocs because they make your feet happy, and you relish the culturally colorful American Apparel brand—the approach is valid for small and big companies.

Sounds right to me.

Sheepwalking

From Seth’s Blog: Sheepwalking

I define “sheepwalking” as the outcome of hiring people who have been raised to be obedient and giving them a braindead job and enough fear to keep them in line.
You’ve probably encountered someone who is sheepwalking.
The TSA ‘screener’ who forces a mom to drink from a bottle of breast milk because any other action is not in the manual. A ‘customer service’ rep who will happily reread a company policy six or seven times but never stop to actually consider what the policy means. A marketing executive who buys millions of dollars of TV time even though she knows it’s not working–she does it because her boss told her to.
It’s ironic but not surprising that in our age of increased reliance on new ideas, rapid change and innovation, sheepwalking is actually on the rise. That’s because we can no longer rely on machines to do the brain-dead stuff.
We’ve mechanized what we could mechanize. What’s left is to cost-reduce the manual labor that must be done by a human. So we write manuals and race to the bottom in our search for the cheapest possible labor. And it’s not surprising that when we go to hire that labor, we search for people who have already been trained to be sheepish.

Interesting, but I think not inevitable. Sheepwalking is the end point of the Taylorist/Fordist era of “scientific management” where people are treated as parts of the machine. Others (managers, engineers, etc.) do the thinking for them.
But in the I-Cubed Economy, it is more and more important that the innovative and creative resources of workers are utilized. We used to call these “high-performance workplaces” (see my piece “Time to Get Serious About Workplace Change”).
I also disagree that “we can no longer rely on machine to do the brain dead work.” As Frank Levy has pointed out, if the job can be described in enough detail to be written down in a manual (a true brain-dead job), then it can either be automated or transferred offshore. Whether a company has brain dead jobs depends on how the workplace is designed. A well design workplace turns brain-dead in to brain-rich activities.
As I’ve argued before, the I-Cubed Economy is very different from the industrial economy’s never ending quest for standardization and optimization of routine activities. Those companies who rely on sheepwalking will not survive. Nor should they.
However, we can not simply let the market take its course. The costs are too high and the outcome uncertain. We could just as easily end up in a race to the bottom as a journey to the peak. The public policy goal should be to help companies make the transition and ease the pain of the inevitable disruption. Expanding and transforming the Manufacturing Extension Partnership program is one example of what could be done. Tax credits for on-the-job worker training (to help keep they competitive rather than wait until they are unemployed) is another.
And there is more, much more. But first we need to get rid of our mind old industrial age mindset of workers as physical cogs in the machine and replace it with the view of workers as creative information contributors. Only then can we avoid sheepwalking.

Patent balance

In an op-ed earlier this month in the Washington Post, Joseph Fuller and Brock Reeve discuss the future of stem cell research (Will We Lose in the Stem Cell Race?). In the piece they contrast the current state of research to the past success in biotech. As part of that discussion of the reasons for that success, they highlight the contradictory role of patents:

Government actions and court decisions allowed the patenting of living organisms and made it possible for private researchers to commercialize discoveries funded by federal grants. Further, Stanford University, which controlled key patents, ensured their widespread and rapid adoption.

On the one hand, proprietary control over ideas as protected by patents was needed to provide commercial incentives. On the other hand, fundamental underlying ideas needed to be shared even if they were already patented. In other words, it was the right balance between proprietary and shared information. Had Stanford not made their patents widely available, the US biotech industry may have floundered. This is a point Fuller and Reeve unintentionally amplify later when they remark, “while Stanford granted 73 nonexclusive licenses in less than a year, WARF has awarded just 13 licenses in eight years under economic terms that many believe have slowed the sector’s growth.” [The Wisconsin Alumni Research Foundation (WARF) holds the fundamental patents underlying embryonic stem cell research.]
Biotech is not the only example of the need to share information as well as protect it. Radio technology was going nowhere until the government stepped in a created a patent pool (controlled by the newly created Radio Corporation of America – RCA). A patent pool between the Edison and Biograph companies (“the Trust”) allowed the motion picture industry to gain a foothold (and ironically helped found Hollywood as independents move from New York to Los Angeles to escape the control of this Trust).
There is an inherent tension between control of information and sharing ideas — a tension that makes the system work. Neither the “everything should be free” nor the “I own it completely; it’s mine” side are completely right or completely wrong. It is a balance.
We need an intellectual property system that understands that balance. Right now, many feel that the system is out of balance. For example, Michael Crichton, in an op-ed in the New York Times – Patenting Life – takes a harder stance on gene patents:

Gene patents are now used to halt research, prevent medical testing and keep vital information from you and your doctor. Gene patents slow the pace of medical advance on deadly diseases. And they raise costs exorbitantly: a test for breast cancer that could be done for $1,000 now costs $3,000.

He would like to see gene patents done away with.
I’m not sure I agree. But I am sure that we need to look at what can and should be protected by patents. We also need to look at mechanisms for patent sharing.
So, it appears that there is a long list of items that should be on our patent reform agenda. I hope Congress is listening.

Continuous innovation

Hal Varian’s latest New York Times column inadvertently hits upon a subject that is near and dear to my heart: how today’s competitiveness challenges are different from the 1980’s:

Remember when Japanese manufacturing techniques were all the rage? You could hardly read the business press without encountering mention of “lean manufacturing,” “just-in-time inventory systems” and “total quality management.”
You don’t hear much about these ideas anymore, but not because they are no longer in fashion. Quite the reverse is true: the practices have become so widely adopted that they are no longer newsworthy.

In other words, the world has absorbed these ideas and moved on. Those who keep talking about how the Japanese economic challenge was not real are missing the point. The US overcame the competitiveness challenges because we learned how to compete better. And government programs, from Semitech to the Manufacturing Extension Partnership, were part of that process.
But, Varian’s subject is not really about the nature of the new competitiveness challenge. He argues that there is one element we can still build upon from that earlier time, especially for online businesses:

It is therefore a paradox that one of the most important drivers of online business success is taken directly from the pages of Japanese management techniques. I am referring to kaizen, the practice of continuous improvement.
Kaizen doesn’t just mean a business should keep trying new things. Rather, it refers to a disciplined process of systematic exploration, controlled experimentation and then painstaking adoption of the new procedures. In the original formulation, kaizen was applied to manufacturing, where experimentation could determine whether a new process resulted in quality improvements or cost savings in a matter of months.
It is much more difficult to apply kaizen to product design, since it can easily take years to design and market a new product. To take a recent example, the iPhone has been two and a half years in the making.
Product development can cost hundreds of millions of dollars, making it almost impossible to run a controlled experiment with a product introduction.
But it is simple to run a controlled experiment with a Web page. Amazon can show a different page layout to every hundredth visitor and determine in a few days whether the new design increases sales.

I have to disagree with Varian as to the application of Kaizen to product development. I think it is done all the time – minor improvements introduced in a quasi-experimental fashion. Likewise, the whole notion of user-driven innovation is very similar to Kaizen.
What we are talking about is really evolutionary innovation – a continuous process of change and adaptation. And speaking of evolutionary innovation, there is a new blog on the subject – Endless Innovation. Call it what you will – evolutionary innovation, continuous innovation, continuous improvement, endless innovation – it is basically the same. Managed change has been come the paramount task and the key to economic growth and competitiveness.
Just like we learned to compete in the 1980s and 90s by absorbing the new ideas of lean, JIT and TQM, we need to learn the new lessons of innovation. Once again, I believe government programs can help – from expanding MEP into an Innovation Extension Partnership, by funding cross-disciplinary design schools and research centers (like we funding engineering and cross-disciplinary research centers) and changing numerous policies that affect intangible assets. The sooner we understand that, the better.

Meaningless innovation?

Bruce Nussbaum warns about The Backlash Against Innovation And Design.
Given this headline today – Republican Romney calls for U.S. innovation – Yahoo! News, I’d say innovation is in danger of becoming a cliché. On the other hand, having a Presidential candidate talking about innovation in the American economy is a good thing – see Romney’s remarks.
As Nussbaum points out:

The hard work of building an innovation culture is only just beginning in corporations. It will take a generation, just as the quality movement took a generation to build.

The same can be said for policy makers. I hope Romney keeps talking about innovation – even it is a cliché.