U.S. Falling Behind in Innovation–Part II
In Part I of this series (shown below this post), I presented the general findings of the
nonprofit, nonpartisan, public think tank, Information Technology and Innovation Foundation (ITIF), regarding Innovation in the U.S. vs. 40 other leading nations/regions of the world. The ITIF report is based on scientific findings–not opinions–and shows that not only has the U.S. dropped to the number 6 innovator in the world, but also its rate of change (improvement) is dead last.
In the same report, the ITIF also presents those things the U.S., or any nation/region, can do to improve competitiveness and innovation. I have capsulized their suggestions as follows:
- Provide incentives for companies to innovate. Incentives should be in the form of robust R&D tax incentives; accelerated depreciation on new equipment; workforce development tax credits; corporate tax structures that make the U.S. more competitive world-wide; and other incentives that encourage businesses to spend more on innovation.
- Encourage high-skilled immigration. The broader the scope of thinking–the better the likelihood of new ideas and innovation. The U.S. is currently sending high-skilled immigrants home, and that is counter productive in the long-term.
- Promote a digital economy. The U.S. is successful in offering new digital devices and services, primarily to the younger generations, but they haven’t been able to make a mobile phone service that doesn’t consistently drop calls. There are thousands of square miles in the U.S. that have no mobile phone service, and thousands more that have only sporadic service. Also, there are more areas in the U.S. without broadband service, than there are with it. Europe and Scandinavia do not seem to have these problems. [A few years ago, I used a mobile phone near the Arctic Circle in Northern Sweden. Today, mobile phones are totally unreliable in my suburban house in the U.S.]
- Support institutions that are critical to innovation. Not just universities that perform research, but also the kinds of institutions and training-centers that foster commercialization of their research. In addition, there should be more support for local economic development, entrepreneurship development, and workforce training.
- Remove regulations and government policies that retard innovation. Small businesses produce 13 times more patents than large patenting firms, yet spend four and a half times as much per employee in compliance of environmental regulations, and 67 percent more per employee on tax compliance than big businesses do. In the U.S., not only does small business receive very little government support, but it also appears that the government is working against small business through overly stringent regulations of small business.
Well, there you are. That’s what the ITIF believes needs to happen to stop America’s slide into oblivion as a leading innovator in the new knowledge-based innovation economy of the world.
I believe all the above items are well and good–and should be done–but they seem to only address the symptoms. The above are things our government can heavily influence, but I believe the reason for America’s demise as the innovation leader goes much deeper.
Commentators to Part I suggested that the root problem is perhaps a cultural and socioeconomic problem. I believe they are right, and I will soon post, as Part III of this series, my views and concerns on the reasons for diminishing innovation in the U.S., along with what I think needs to be done to improve the situation.
I would also like to hear from everyone out there who has a suggestion on how they think we can bring innovation back to the forefront of the U.S.
U.S. Falling Behind in Innovation–Part I
It was bad enough that the U.S. traded its manufacturing might for quick profits by outsourcing outside the country, but now it looks like our knowledge-based economy is faltering under global competition as well.
A report just released by the nonprofit, nonpartisan, public think tank, Information Technology and Innovation Foundation (ITIF) indicates that innovation in the U.S. is rapidly falling behind the rest of the world. The study currently places the U.S. in sixth place in the world, and running at a pace that will place it even lower over the next decade.
There have been many studies made over time, as well as more recently, that place the U.S. as the world leader in innovation. However, those studies have been based on opinions, interviews, and surveys. This report by the ITIF is the first to approach innovation from a scientific perspective, using 16 indicators to study innovation and competitiveness. These indicators fall into six broad categories:
- Human capital
- Innovation capacity
- Entrepreneurship
- IT infrastructure
- Economic policy
- Economic performance
Not only did the ITIF study place the U.S. in sixth place in the world for innovation and competitiveness, but the study also determined that all of the other 39 nations/regions studied have made faster progress toward the new knowledge-based innovation economy in recent years than did the U.S. The study shows that the U.S. has made the least progress of the 40 nations/regions in improvement in international competitiveness and innovation over the last decade. The U.S. is dead last in this category.
This should come as no surprise, since the National Academies published their landmark study, “Rising Above the Gathering Storm,” back in 2005. It warned then that America’s lead in science and technology was “…eroding at a time when many other nations are gathering strength.” It appears their warning has come to pass.
What is happening to the greatest industrial nation in the world? Have we allowed greed and avarice to cloud our minds, so we can’t see beyond the next payday? Are IPO’s more important than innovation? Is shareholder value more important than spending profits and dividends on R&D and innovation? Are our industrial leaders so intent on filling their pockets, they have lost their way? Has our government (under the guise of public interest) regulated the heart out of those companies that could best put the U.S. back in the role of world leader?
The ITIF study presents six things that need to be done by the U.S. (or any nation/region) to improve their innovation and competitiveness. I will present these six things as part II in my next post. Watch for it.
Venture Capital Available
If you are a tech-based company and are looking for venture capital as seed money or expansion capital, it is now available…that is, if you are developing new applications or services for Apple’s iPhone, or iPod Touch.
The Venture Capital firm of Kleiner Perkins Caulfield and Byers (KPCB) is seeking companies with “market changing” ideas. KPCB’s current iFund focuses on location-based services, social networking, mobile commerce, communications, and entertainment. They will make investments ranging from $100,000 of seed capital, to $15 million of expansion capital.
If your business fits any of KPCB’s current focus areas, and you need capital to start up, or expand, this may be your opportunity. You may get more information from KPCB here.
What Can We Learn From Costco?
In their November 2008 issue, Fast Company magazine featured an interview with Jim Sinegal, CEO and cofounder of Costco. While most retailers are whining about the economy, in August Costco had an increase in same-store sales of 9%. The reason for this is very simple; there are no secret programs, or special incentives to buy there…just good old-fashioned business sense. Here are the key points in Jim’s interview that we can all learn from.
- Don’t gouge your customers. The interviewer pointed out that some suppliers still balk at Jim’s policy of not marking products up more than 15%. So much for supply and demand marketing.
- Treat your customers well. Jim: “Customers shop with us for value. They don’t shop with us for cheap prices on cheap merchandise. They expect us to deliver value on quality….The final analysis is, the customers vote at the checkout.” This is something for all of us to remember.
- Treat your employees well. Wall Street complains that Costco treats its customers and employees better than they do their shareholders. They pay their workers an average of $17 per hour, and 90% of health insurance costs, for both full-time and part-time employees. Yet, revenues have grown 70% in the last five years, and their stock has doubled.
- Know your competition. Jim: “Hardly a week goes by that I’m not in a Sam’s.” Do we study our own competition that closely?
- Try new things. Sales on Costco’s e-commerce site are expected to hit $1.6 billion this year, a 33% increase over 2007. Coffins are one of their big e-commerce sellers. Who would have thought?
- Do not be afraid to fail. Jim: “You don’t have enough space in your magazine to talk about all the things that we’ve tried that didn’t work out.” How bold are we about trying new things?
- Manage by walking around. Jim: “You know, there certainly are days when I’ll visit 12 (stores). I will be traveling to our warehouses every single week between now and Christmas…I try to approach the visits from the standpoint of the customer. Does the building have the right goods out? Is it well stocked and clean and safe? Nothing is a bigger turnoff than poor housekeeping.” Spending quality time with our customers and employees is going to be one of the keys to surviving this recession.
- Be innovative. Jim: “We just reconfigured our cashews. They were in a round canister, and we put them in a square canister. It sounds crazy, but we saved something like 560 truckloads a year of that one product.” In today’s chaotic world, innovation is not optional.
- Keep overhead low. Jim answers his own phone and sends his own faxes. I read somewhere else, a while back, that Jim uses the same desk, in the same small office where he started 25 years ago. Many of us can take a lesson from that.
Obviously, Costco is a reflection of its CEO and the values he brings to his business. But then, aren’t all our businesses a reflection of the values of the owner?
Something to think about.
My Book
Any business crisis can be managed before it becomes fatal . . . Be Your Own Turnaround Manager tells you how. Click here for more information.