Indiana-based strategic consultant David Virag sent me the following commentary today, partly in response to my recent posting on the Nature of Innovation. Virag is well-placed to speak on issues relating to technology and innovation, with more than 20 years of experience in consumer electronics and high tech managing business and technology strategies.

With the current mortgage crisis and high unemployment rates, there is a general feeling of uneasiness among most people regarding the U.S. economy and future prospects.  Current efforts by the Federal government to kick-start the economy with subsidies and low-interest rates have yet to take hold.   With the unemployment rate sticking at 10%, many economists are predicting a jobless recovery.  However, without a strong labor force, it’s unclear how much recovery can ever take place.  An AP analysis published this week found very little job creation from public road construction programs.   Perhaps a jobless recovery is one where the economy merely stabilizes.

Government policy notwithstanding, one thing that does have the ability to recharge the economy is good old-fashioned innovation.  The US has been a global leader in innovation over the past century.   This innovation is one of the critical elements that propelled our standard of living to be the highest in the world.   Looking back through the past 50 years or so, the U.S. has been at the forefront of virtually every major technological change in the world.  We played key roles in the research and development, manufacturing, and sales of radio, television, automobiles, airplanes, computers, cellular phones, and the Internet.  Each of these technologies changed the way people live and businesses work and with it millions of jobs were created.   If one looks at just the last century, mankind has literally progressed from driving a horse and buggy to walking on the moon.  Only 95 years ago, we celebrated the first coast-to-coast telephone line.

Just as in the study of the stock market, past performance does not guarantee future results.  As technology has changed so has the global landscape.  Some of the very inventions created in the U.S. now enable global competition.   The Internet allows for nearly instantaneous access to data and information from anywhere around the world.  Low-cost computers and networks give everyone access to what was equivalent to a super computer only a decade or two ago.   Transportation allows for manufacturing of goods at the lowest cost location.  The U.S. university system is still the best in the world.  The best foreign students come to school in the United States; however, it is now easier (and perhaps more profitable) to return home and put new found skills to use in competition.

Statistics from the U.S. Patent office illuminate these trends.   In 1963, a total of just over 45,000 patents were granted to U.S. and non-U.S. inventors.  By 2008 this number jumped to over 157,000 patents, a change of nearly 250%.  The decade of the ‘90s represented a 56% increase over the 1980’s demonstrating the innovation linked to the emergence of computers, cell phones, and the internet.  The first 9 years of the new millennium provided over 1.45 million patents granted, or a 31% increase over the 1990’s.

While the past 9 years have been bountiful, it is worth highlighting a couple of things.  First, the number of grants to U.S. inventors peaked in 2006 with declines in both 2007 and 2008.   While two data points don’t make a trend and declines have prevailed in the past, it is highlighted by the second trend of note, the rise in patents issued to foreign inventors.  In fact, 2008 represents the first year in which a majority of the patents granted at the U.S. Patent Office were granted to foreign inventors (50.8%).   By comparison, patents granted of U.S. origin represented 81% of the total patents granted in 1963.  Since 2000, 51.7% of the patents granted are to U.S. inventors.  For the decade from 1970-79 this number was 66.7%.   The U.S. Patent Office determines origin by the residence of the first named inventor.

Globalization is here.  Competition is good.  Through innovation, competition, and collaboration, the surest way to return to prosperity is through invention.  We need the next Microsoft and Intel, the Qualcomm of the 21st century.  We need not just evolutionary thinking but a revolutionary mindset.  Tough times can make for outside the box thinking.  When that next leap in innovation does come, odds are it will be more of a global effort than in the past.

David E. Virag has extensive expertise in developing new technologies and applications, business valuation, leadership, and strategy.  He holds an MBA from the Booth School of Business at the University of Chicago, and is currently a Principal consultant with New Era Strategies.  To learn more about David, please go to www.techonomicstoday.com

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As pundits across the Internet continue to post their predictions for 2010 (what’s the cut-off for this, by the way? It’s bad enough that Christmas starts in October now, but aren’t “predictions” supposed to take place BEFORE the year in question?), I am struck by two things: the struggle between our growing desire for less clutter and our impulse to acquire and hoard, and the continued admiration for truly innovative activity, regardless of its commercial or technological viability.

We persist, as a society, to seek the newest and most disruptive opportunities, if only to engage in flights of fancy. Attendees at this past week’s CES show in Las Vegas will be the first to testify that much of what was touted there as “the next big thing” will never move beyond the prototypical. This is not necessarily due to the nature of the prototype itself, however, but rather the willingness (or lack thereof) of a business venture to invest in that emerging offering.

Before we start delving too deeply in to the obvious realms of technological invention, let me stress that innovation is a concept that permeates every industry and market sector. Whether you are semiconductor company seeking to maintain (and even best) Moore’s law, a TV or film producer hoping your property will have just the right “magic sauce”, or a car manufacturer investing in one alternative fuel research pipeline, as opposed to another:  innovation is an “agnostic religion” which has unfortunately become somewhat synonymous with instant viability, and not with process-oriented supportive infrastructures of creativity. In an incessantly bottom-line focused business world, truly supportive nurturing of bright ideas was replaced by desperate flash gambles: far better to throw small investments at multiple opportunities, hoping for speedy returns on one, than to put all one’s proverbial eggs in one basket, and wait patiently for nothing more than the possible…right?

So is there actually a timeline for innovation? Can we plot the building blocks for innovation or, by process of elimination achieve the same, by identifying the obstacles our business culture may have erected, in its past 3 decades of greed (and I do not use the word lightly)?

Businesses today have become too tightly focused on short term ROI, leaving little or no room for creativity or invention. The investment required to support an innovation pipeline is no longer being made by most traditional technology providers, product developers and R&D labs, now focused on saving themselves to prosperity by milking their IP portfolios as efficiently as possible.  Admittedly, a few companies, studios, and other enterprises have invested very small sums in “incubator” ventures, recognizing very cautiously the value in maintaining *some* sort of connection to long-term growth models. Others, such as Google and Facebook, hold a commitment at their very core to embed the pursuit of innovation as part of the daily task list of every employee. As a result, the consistent commitment to process and product improvement, regardless of sources or roles, leads to what I call “3M moments”: true innovations realized by everyday employees seeking to meet market needs, supported by companies fostering “permitted bootlegging” policies, rather than R&D investments made only on the basis of direct ROI.

I suggest that – with the exception of military imperatives (World Wars and the like) – the greatest business and social growth has occurred historically when the least pressure has been applied by the businesses “hosting” the research and development leading to that growth. We are now entered in to such a time, when an economic downturn of such harshness has released companies from the day-to-day “make me a buck” pressures imposed by day-trading shareholders of past. The next two to five years present a fantastic opportunity for businesses large and small to integrate innovation pipelines back in to their midterm and long term strategies. There is no distinct single formula for innovation, however, nor any marked timetable. Instead, invention occurs at the confluence of myriad flexible solution environments, be they fiscally, technologically, or socially driven.

People will always come up with brilliant ideas. It then falls to business or academia to incubate those ideas, until such time as the market is able to make best use of them. Take, for example, the seemingly never-ending saga of the e-book. This is not some newly emerging wonder toy. The e-book has existed for more than 20 years. Indeed, over 15 years ago, it was fully recognized as a tangible replacement for print journalism:

[vimeo]http://vimeo.com/17295950[/vimeo]

I believe that e-books and e-magazines will be mainstream in the very near future, rather than early adopter indulgences. Will print journalism disappear? I don’t know. I can’t see a reason why we should continue to invest in deforestation, unnecessary hard distribution costs, or ink, when the alternative permits us to invest in more sustainable environmental and business practices. E-journalism allows us to pay our reporters more, lets us deliver information under multiple revenue generation models (advertisement-based, subscription-based, single POP-based), and makes more sense in a world seeking less clutter and more time.

Whether we end up holding Kindles, Nooks, Ques, Skiffs, Apple Tablets, or Sony Readers in our hands, our physical relationship with information will continue to evolve, at a pace governed by the consumer, and the speed of adoption will sometimes be influenced by very un-business-like elements. Software elements such as Kurzweil’s Blio may accelerate or arrest this evolution, and if there’s one thing that trumps humanity’s drive for innovation, it is its nostalgia. eBay built an empire on the back of this certainty, and political parties feed off of our thirst for non-existent “good old days”.

Our job as thinkers and business leaders is to balance our responsibilities to our shareholders with our younger dreams, born perhaps when we were bright-eyed undergraduate visionaries: imaginings wherein anything was possible. We were once able to construct whole worlds absent of patent trolls, stock valuations, or balance sheets. Perhaps the greatest innovation of the next 30 years will be the discovery of a formula that elegantly balances commerce and creativity once more, heralding a new and thrilling renaissance. Not so much the undeniably great advances of this past century, but the more balanced and measured movement that brings forth whole societies. Now that would be a great “Reset” to look forward to!

(*William Shakespeare; Hamlet; Act 3, Scene 1)

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