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Monday, September 5, 2016

Boiling the frog

Value Creation in the 21st Century from Curt Carlson 

http://www.practiceofinnovation.com/value-creation-in-the-21st-century/#more-1110

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The world is entering a turbulent and demanding economic period. Over the past few decades job growth and prosperity have dramatically slowed in America and many other developed countries, including Japan and the European Union. In America GDP growth has declined from 4% in the nineteen nineties to under 2% per year. Larry Summers has referred to this as the “new normal.”This growth rate will not produce the jobs and prosperity needed. If not addressed, this decline will cause major disruptions across society. Going forward America and the world must significantly improve its innovative performance while educating the world’s most productive workforce.

Today’s innovation economy has four distinguishing properties.  Many technologies improve at rapid exponential rates, global competition is intense and increasing, there are unprecedented opportunities for major new innovations, and emerging global markets are huge. Confronting these challenges is daunting. Most companies and countries are failing to adapt to these powerful dynamics.

America’s competition will increase dramatically over the next few decades. In China two million people move from the countryside to the city each month. Going forward America is competing against four new cities the size of NYC every year. 

The pace of innovation is accelerating. As exponential improvements in information, communications, and artificial intelligence technologies advance they create new tools and capabilities. The positive feedback from these developments makes the world increasingly transparent and competitive, further accelerating the pace of innovation.

Companies are finding it more difficult to survive. In 1930 large companies on the S&P 500 list had lifetimes of roughly 70 years before dying or being bought. Now their lifetimes are well under 20 years. For the first time in U.S. history 200,000 more companies are failing each year than being born. Even in Silicon Valley most venture capitalists lose money. University “tech transfer” programs are mainly unsuccessful absent a major drug license, like NYU’s Remicade. Almost all measures of innovative output show poor results. Our innovative performance is like the poor product quality before Total Quality Management (TQM).

Going forward America will not have the most RD&I professionals or the most resources. China has more honors students than America has students, and Asia already spends 50% more on RD&I than the U.S.  For America to win its share of jobs and prosperity it must leverage its core strengths and work smarter. 

The need for greatly improved innovative performance is being amplified by automation. Autonomous cars, trucks, and buses will eliminate up to three million jobs. Over the next decades years various forms of automation may eliminate half of today’s jobs. Robotics, 3-D printing, bio-engineering, plus many other exponential technologies, along with new business models like Uber, will reshape almost every industry. 

Given today’s poor results, many government RD&I agencies are rethinking their initiatives and policies. Too often the impact of their current initiatives is inadequate. In Finland, the lack of RD&I success resulted in a 23% cut in Tekes’ 2016 funding, their equivalent of NSF. In America I-ARPA and ARPA-E were modeled after DARPA, which is generally considered to be the world’s most successful innovation agency. Japan’s ImPACT program for creating major commercial innovations was also modeled after DARPA. Singapore’s CREATE initiatives are joint RD&I centers between their universities and others, such as MIT, Cambridge University, and ETH Zurich. NSF created the I-Corps program to teach students and others the basics of value creation. DARPA also uses “grand challenge” competitions to create new innovations at the speed of the innovation economy. 

Increasingly universities are responding to these challenges. They understand that students need innovative skills to thrive in a world where rapid, constant value creation is a necessary life skill. For example, Finland created Aalto University, an “innovation university” with a comprehensive projects-based curriculum. At Stanford University, the highly desirable d.school and Bio-X experiential programs are now emulated internationally. WPI pioneered a highly-influential projects-based curriculum in 1970 called the WPI Plan. It includes team projects performed around the world, including in India and China. Olin College has more recently pioneered one of the most far reaching projects-based curricula, with no discipline-specific departments and no tenured professors. 

Today only a few professionals and enterprises have the innovative skills and value-creation processes to identify and systematically develop major new opportunities. The few that do, such as Apple, Google, P&G, GE, SRI International, and IDEO, are all leaders in their fields. Recently improved value-creation processes are being developed, such as Agile and Lean. For creating major new innovations the value-creation practices described in the 5 Disciplines of Innovation and the Innovation-for-Impact methods described here are required. 

In addition, companies are increasingly using other models, such as the X-Prize and Google-X “grand challenges” to drive innovation. On-line competitions from Kaggle and many others are producing impressive outcomes. These programs are showing that large systemic improvements can be made.

What today’s successful company, government RD&I, venture capitalist, and university programs all have in common is the strict adherence to proven value-creation best practices. The key ingredients are:
1) a focus on important opportunities,
2) complementary teams composed of the best practitioners,
3) a “playbook” for value creation, and
4) intense, continuous team ideation.

If the opportunities are not important then they are rapidly overwhelmed by global competition. Only the best, most committed teams win in a hyper-competitive world. The playbook assures that everyone on the team has a shared understanding of the concepts and processes required for innovative success. Intense, continuous team ideation is required because exponentially fast learning is required to stay ahead of the rapid, exponential improvements in technology and the competition.

The value-creation best practices summarized above are just the start. In the coming decades America will be in a profoundly more competitive and challenging world. Even better best practices must be invented and used (see The Transparent Company). Ad hoc innovative approaches guarantee failure. Only the rigorous application of value-creation best practices can lead to systematic world-changing R&D and high-value innovations

As previously with TQM, the comprehensive use of value-creation best practices produces transformational results. Improvement in innovative impact of ten or more times is typical. As importantly, developing a U.S. workforce where engineering graduates understand and apply these skills will allow America to continue to lead in the creation of new, high-value, global innovations.

In a future post I will describe the process that GM went through at the NUMMI manufacturing plant to learn and apply the Toyota Manufacturing System, Toyota’s version of TQM. GM took 15 years to take the lessons of NUMMI seriously and then it took another 10 years to implement them. 

Many of those lessons are the same as today’s organizations are experiencing trying to adapt to the demands of the global innovation economy and the use of value-creation best practices. But today companies don’t have 25 years to adapt and they are not likely to be bailed out by the U.S. government with a $50 billion dollar loan. If they are not going to be another boiled frog, they better jump fast.

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