TCS Daily

The Networked Creators

By Dominic Basulto - December 2, 2005 12:00 AM

Is the U.S. really losing its competitive edge when it comes to innovation? That was the premise of a recent New York Times piece[1] which painted a bleak picture of the state of innovation in America. The article by Timothy O'Brien pointed to a recent National Academy of Sciences report ("Rising Above the Gathering Storm"), anecdotal evidence from a 74-year-old research professor at The Johns Hopkins University and findings from the Industrial Research Institute to show that -- by any conceivable metric or benchmark -- the pace of U.S. innovation appears to be slowing. Worse yet, the pace of innovation in places like India and China appears to be rising.

If it all sounds gloomy and negative for the state of U.S. innovation, it's not. While the Times article goes to great lengths to highlight the declining number of science and engineering graduates produced by U.S. universities, the downsizing of R&D spending across entire industries and the declining share of patents held by U.S.-born inventors, it also fails to neglect a very important point: companies no longer produce patents and innovations in the same way that they produce widgets. Focusing on a metric like "number of patents granted" is simply not an intellectually honest way of calculating how innovative a nation is. Sure, it's easy to count and measure, but does it really matter?

As MIT researcher Michael Schrage pointed out in a controversial op-ed piece in the Financial Times[2] recently, there's no verifiable link between the number of patents granted and innovation. In fact, there's not even a verifiable link between corporate R&D spending and innovation:

"Any policymaker, chief executive or innovation champion who relies on R&D intensity and R&D budgets as a meaningful or usable metric to assess global competitiveness virtually guarantees shoddy analysis and distorted decisions. Few things reveal less about a company's ability to innovate cost-effectively than its R&D budget."

Moreover, a recent Booz Allen Hamilton research study[3] pointed out companies have mistaken R&D spending as a proxy for innovation. It's just not possible to spend your way to innovation. The consulting firm analyzed the world's Top 1000 corporate R&D spenders and found no substantial evidence to corroborate the conventional wisdom that greater R&D spending leads to more innovation. In fact, there was no link whatsoever between R&D spending and key financial factors such as growth, profitability and shareholder return. That's sobering news indeed.

At the core of the matter, companies are experimenting with new approaches to the innovation issue. There are a striking number of buzzwords and jargon used to describe this phenomenon -- including "democratized innovation," "collaborative innovation," "open-source innovation," "emergent innovation," "innovation networks," and "innovation ecosystems." If you boil all of these concepts down, however, one fact is clear: innovation in a global, networked economy is too complex and too fast-moving for one corporation to tackle alone. In response, corporations are turning to their customers and partners for new ideas. Not only that, they are seeking out individuals and partners at the "periphery" of their businesses.

One of the most intriguing notions of this new breed of innovation is that of the "networked creator," as coined by the strategy guru John Hagel. In a recent McKinsey Quarterly article[4] that outlined how companies are moving away from "push" business models (i.e. top-down, hierarchical models) to "pull" business models (i.e. modular and decentralized), Hagel included a fantastic description of the way that businesses are re-tooling their approaches to mobilizing resources throughout the organization. New "pull" approaches are open-ended and "designed to evolve based on the learning and changing needs of the participants." Moreover, new "pull" models treat people as "networked creators" who can help organizations get the right resource to the right place at the right time. In the case of innovation, these "resources" are actually "ideas."

So what does it all mean? No, it's not consulting-speak to gloss over a serious deficiency in the fundamental factors driving U.S. innovation. It's a realization that the future of U.S.-style innovation is tied closely to the ability of U.S. companies to collaborate with others. Core competencies, skills, or ideas are no longer "owned" by one company or one individual. Each participant in the "innovation ecosystem" now plays an important role. Each partner in the "innovation network" is a co-creator and a co-innovator.

As a result, focusing too much on the number of patents filed or the level of R&D spending is a certain recipe for misunderstanding new trends in the world of innovation. Most likely, the U.S. is not losing its competitive edge when it comes to innovation.

In mid-November, the Democrats unveiled their "Innovation Agenda" for America -- full of new spending for things like education programs and research grants. The goal of the new "Innovation Agenda" is a simple one: pour more money into education in order to graduate more math and science students; pour more money into R&D in order to generate more patents and inventions. Before we get ready to pour millions of dollars into doing things the old way, though, we should be asking ourselves a very important question: If we really care about innovation, what's the best way to mobilize the nation's resources?

Dominic Basulto is a frequent contributor to TCS and the Editor of the FORTUNE Business Innovation blog.

[1] The New York Times, November 13, "Are U.S. Innovators Losing Their Competitive Edge?"

[2] Financial Times, November 8, "For Innovation Success, Do Not Follow Where the Money Goes"

[3] Booz Allen Hamilton, "No Relationship Between R&D Spending and Sales Growth, Earnings, or Shareholder Returns," October 11, 2005.

[4] The McKinsey Quarterly, "From Push to Pull: The Next Frontier of Innovation"


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