Innovation Openness

Innovation Openness

When you learn something new, when you have a new insight into the world, when you figure out how to do something that you couldn’t do before, do you share that insight or do you try to keep it to yourself? If you are a big business, you probably try to keep that to yourself. If you are a young entrepreneur, you probably share aspects of your break through, while hiding the special secrete sauce that makes it work. And in any other aspect of life, you probably blast your insight out to the world on social media for all to see and hear. Innovation openness is something that we are becoming pretty comfortable with in our personal lives, and it is starting to creep into parts of our business lives as well.

 

Being open with information helps spur innovation because it gives more people insight and access to what is really taking place. Your perspective is always going to be limited. You can only know and experience so much, but by being open and sharing what you have learned, others will be able to take your ideas further and help develop truly new and innovative approaches by building on what you have already done. If they too share their new insights, then entire fields and industries can take massive leaps forward. As Dave Chase writes in his book The Opioid Crisis Wake-Up Call, “Openness is proving itself in an array of settings. The beer market is mature and has been dominated in the U.S. by a couple behemoths, yet craft brewers recently have grabbed over 20 percent of been spending. How? Craft brewers are radically open with each other regarding how to succeed, recognizing that their real competition is the mega brewers, not each other.”

 

How you think about your competition will probably influence how open you are with your data and insights. If you really don’t want your sibling to know how you put those cool wood panels on the wall, you might not be as open about the process as you would be if you really wanted to brag to your friends about how you were able to get them up. Similarly, if you are in a business where your insight gives you a valuable competitive edge, you won’t want to share what you have learned. However, sometimes this secrecy becomes part of the status quo, and more and more data and information is locked down, with processes, contracts, and everything else being hidden from as many people as possible. This is what is happened in healthcare, and Chase considers the ramifications of this attitude.

 

“One of the failings of the wildly under-performing status quo health care system is how poorly insights and breakthroughs get disseminated. Research shows that it takes 17 years for effective breakthroughs to become mainstream.”

 

Healthcare is costly and few people are fans of their insurance plans or hospitals. To change the continual cost growth in healthcare, innovators will have to find new ways to approach challenges and problems that have existed in the industry for years. The more open companies can be about successful approaches, the better it will be for all of society. Keeping insights hidden and failing to discuss insights will perpetuate the stagnation we currently see in so much of the healthcare system.
Disruptive Innovation

The Basics of Disruptive Innovation

In his book Deep Work Cal Newport shares a story about Clay Christensen, the Harvard Business School professor who coined the term disruptive innovation. Its an idea I like quite a bit, especially since it is a big concept in healthcare right now, and I focused quite a bit on health policy and dabbled slightly in healthcare economics during my graduate studies.

 

Newport describes the basics of disruption like this, “entrenched companies are often unexpectedly dethroned by start-ups that begin with cheap offerings at the low end of the market, but then, over time, improve their cheap products just enough to begin to steal high-end market share.”

 

In this model, Uber wouldn’t be a disruptive innovation. Uber didn’t do anything to dramatically change the world of taxis. They sidestepped a lot of entrenched thinking and decided that laws and regulations didn’t apply to them while introducing badly needed technology to the world of taxis, but they didn’t offer a new cheap version of the service to gradually build upon and improve.

 

An example of disruptive innovations that I like, that I learned about in a healthcare economics class, is Bose headphones. Bose is producing headphones that have impressive noise cancelling, noise isolating, and noise amplifying technologies. They are certainly not cheap consumer products, but compared to highly technical, very expensive, and highly individualized hearing aids, they are. They don’t do everything that a hearing aid does now, and they don’t provide quite as good of a hearing experience for someone who relies on hearing aids, but they do seem to be able to compete at the lower end of the market. For people who are currently priced out of hearing aids and people who don’t have complete hearing loss but maybe should start considering hearing aids, Bose headphones seem like they can help. They can cancel competing sounds and provide just enough amplification and isolation to improve some people’s hearing…even if hearing aids would be a better long term solution.

 

The concept is important for several reasons. If you are a business executive, you need to know what is happening in your market space, and you need to know when someone is coming along to provide a cheaper service that might one day compete with you directly, or steal your market share. Also, from a regulatory standpoint, understanding disruptive innovations and where they may be occurring is important. If people are ditching their pricey hearing aids for less effective Bose headphones, are they putting themselves at risk while driving or navigating busy environments? What happens if a disruptive innovation guts an industry, and leaves people with disabilities who relied on the high priced product’s level of support and customization without a suitable product or service?

 

We should keep disruptive innovations in mind because they can unlock new potentials (we do a lot with our phones in ways that are quicker but not always as user friendly as old standard alternatives) but can also be dangerous for individuals and markets (should we really allow anyone to use a phone to scan their eyes to get a new glasses prescription?). Thinking about disruptive innovations helps us think about current social and economic trends, and it also forces us to be more considerate of others. We have to balance and weigh the interests of business, the interests of new consumers, and the interests of vulnerable populations when we think about where a disruptive innovation could push a market.
Workplace Design

Workplace Design

One of the things I am secretly fascinated by is workplace design in our modern knowledge work economy. I’m not so interested in where the copy room is located, how the office kitchen is built out, or what furniture/decorations are around, but the big high level design question: where will our employees sit to do their work? (or stand sometimes if your company is cool like that)

 

A lot of companies today are trying to get away from standard cubicle models for offices. The traditional work-space where senior team members have their own office while junior members are in cramped cubicles feels anachronistic, especially for modern tech companies. The alternative has been open office spaces, where dividers between employee workstations are minimized. Companies want to be innovative, to spur conversation between creative individuals, and they also want to create environments where employees would actually want to be, rather than soul sucking cubicle farms.

 

However, thinking and focusing in open work-spaces can be challenging. As Cal Newport writes in his book Deep Work, “Both intuition and a growing body of research underscore the reality that sharing a work-space with a large number of coworkers is incredibly distracting – creating an environment that thwarts attempts to think seriously.” When it comes time to buckle down and focus to get an important project done, an open work-space can become a major hurdle.

 

In his book, Newport encourages more of a hub and spoke style office. He doesn’t say if he thinks everyone should have their own office or be in a dreaded cubicle farm, but he thinks that people should be split by departments/teams into hubs where people can get a little more quite space to do deep work. He encourages developing open pathways to the bathroom, kitchen, or conference rooms that encourage serendipitous connections with others, to help spur some creative encounters that might otherwise not happen in individual offices. He doesn’t think we should all just be isolated away in our little hubs, but in a sweet spot where we have space to think as well as chances to interact and share different ideas and perspectives. “Isolation is not required for productive deep work. Indeed, their example [Bell Labs] indicates that for many types of work – especially when pursuing innovation – collaborative deep work can yield better results.”

 

I’m still not sure exactly what the perfect office space would be for different types of companies based on Newport’s thoughts. Should a CPA firm have a hub and spoke style office, or do they really need their own walled off offices? How exactly do you balance the need for focus spaces with the need to actually interact with other human beings, to prevent employees from going to work but never interacting with anyone? Space for deep work is important, but Newport also advocates for bumping into other creative people at reasonable intervals to foster creativity and heighten innovation and productivity. I’m not sure where exactly we will end up with workplace design, but I don’t think it will be in a space where everyone has their own office or a space where no one has an office.

Chaos and Innovation

The last few weeks I have been thinking quite a bit about chain restaurants. At some point in the recent past, I started to really dislike your typical chain restaurant. Perhaps my wife and I were gifted too many gift cards to Darden Restaurants, but I find myself feeling slightly disdainful toward chains and longing for the uniqueness of small locally owned restaurants. I’ve had trouble keeping chain restaurants off my mind, and I have been asking why they become so popular, why people get so excited when they spread, and why they have such staying power.

 

In his book The Complacent Class, George Mason economist Tyler Cowen offers an answer. He describes chains as being popular because they make the choices easier for the consumer. They standardize their products and environments, making decisions for consumers easy and automatic. They are also easily recognizable and expensive chains can be a simple way to signal wealth. Their products and services in general probably won’t blow anyone away, but things will always be predictably decent.

 

Cowen offers this as an explanation for why chains dominate markets, but also cautions against this market domination. He writes:

 

“As chain stores rise, there is also a loss of dynamism, competition, and market entry for new ideas and products. Keep in mind that today’s major chain was once a small individual store on a street somewhere. A bit more economic chaos, even if it is inconvenient in the short run, actually tends to be correlated with higher rates of innovation.”

 

When you go to a chain restaurant, you can be pretty confident that you will get a decent meal. You can be sure that the menu won’t have anything too strange on it, so you can almost throw a dart and select something generally in line with your usual tastes.

 

Go to a street corner food vendor, a locally owned ethnic restaurant, or that fusion joint that recently popped up, and the guarantee that you will know what you want to order is gone. Ordering is more difficult and you won’t have the certainty that you will enjoy whatever you order. This is great if you want something unique and new, but if you don’t feel like making more tough choices at the end of the day, this is another obstacle to a full belly.

 

The problem, however, with chain restaurants is that once they become dominant, and once they have a menu where everything generally appeals to the median customer’s pallet, there is little incentive for new innovations in the food space. Marginal gains won’t be found in new menu items and unique flavors, but rather in smaller portions and new ways of cutting costs or managing the supply chain. We might get some efficiency gains in this model, but the innovation has nothing to do with the product or service we receive, it is entirely focused on further back-end standardization.

 

We may all be happy and get what we want from this type of model, but we might also be foregoing greater gains from new innovations to the actual products and services themselves. More competition between restaurants might lead to even more new fusion joints, and we might get to experience new irresistible flavors that far surpass the standardized food options at chain restaurants.  It may be chaotic and hard to sort through at times, but settling for easy products and services might make us worse off in the end than if we made more of an effort to find something interesting and excellent.

To Wear a Sweater or Not?

There is a story that I hear from time to time in different contexts. Depending on the context, it is framed as either positive or negative, with different ideas about what our future holds and how we should behave. The story manages to hit political and social identities, aspirations and fears for the future, and concerns over self-sufficiency and parochialism. The story is about a president who encouraged us to wear sweaters during the winter.

 

I’ll start off with the negative view, one perspective of which Tyler Cowen expresses in his book The Complacent Class. He writes, “Jimmy Carter put on a sweater and urged Americans to turn down the thermostat, representing a new era of lowered aspirations. In other words, the American response to economic adversity was to seek to restore comfort more than dynamism, and Americans pushed their culture in this direction all the more in the 1980s.”

 

Cowen’s critique is that as a response to inflation and oil insecurity from foreign oil dependence, Carter suggested we accept limitations and lower expectations. Our president at the time did not encouraging Americans to find new ways to make the world the way they want it. I think this critique is fair. Instead of imagining that the world could be better, that we could be comfortably warm and energy independent through new technology, the story suggest we should just deal with some level of discomfort.

 

I’ve heard others reflect on this story in a similar way. They criticize Carter for a defeatist attitude and for thinking small. People don’t like the parochial feeling of having an elitist person tell them to be tougher and to put on another layer rather than be comfortable but use more resources. Its easy to understand why someone might have the mindset that they deserve to run the heat, even if it is wasteful, because they worked hard to be comfortable and they can afford it.

 

I also think there is value to having our top political leaders signal that we can be more and that we can use science, technology, innovations, and a sense of purpose to make the world a better place. Perhaps encouraging us to keep the thermostats where they were, but also encouraging us to, as the line from the movie The Martian says, “science the shit out of this” would have landed us in a better place than where we are now.

 

But on the other hand, perhaps Carter was right. I have heard people praise Carter for being honest and realistic with the American public. I have heard people criticize Reagan, Carter’s successor, as being an out of touch elitist wearing a suit 24/7. I think people today desire a president like Carter who would signal that they were more in touch with America by turning down the temperature in the White House, making a personal sacrifice themselves before asking others to do the same.

 

Carter’s statement that we need to conserve resources and think critically suggest that we should not just use resources in a wanton fashion. This is a sentiment that climate activists today are trying to mainstream, and perhaps if we had listened more carefully to Carter, we could have shifted our technology to be more green, less resource demanding, and less polluting. After all, who are we to decide that the world should perfectly suit us for every moment of our existence? Isn’t a little discomfort OK, and isn’t it a good thing for us to recognize that the world doesn’t revolve around us? Is it better if we turn the thermostat down, put on a sweater, and pull out a board game to play with friends and family rather than crank up the heat and stare at our screens?

 

My takeaway from this story almost has nothing to do with the story itself. Whether we decide Carter was right probably has more to do with who we want to be, who we want the world to see us as, and what is in our self-interest than it does with whether we truly believe his attitude reflected and encouraged complacency. My takeaway is that events happen in this world, and we attach stories and meanings to the events that can be understood in different ways depending on our background and context. The narrative we create and attach to an event matters, and it shapes what we see, what we believe, and in some ways how we feel about the things that happen in the world. Think deeply about your goals, what you want to achieve, and how a narrative can help you reach those goals, and you will find the ways to tie that narrative into an event. At the same time, watch for how others do the same thing, and when you have discussions with others and want to change their mind, be cognizant of the narratives at play before you go about throwing statistics and facts at someone. Maybe a new narrative will be more effective than a bunch of economics and math.

Collaborative Governance

In The New Localism, Bruce Katz and Jeremy Nowak discuss the elements needed for cities to continue to grow as economic engines of modern economies. The United States currently has a handful of dynamic cities across the country which are powering the national economy. San Francisco (really the Bay Area as a whole and Silicon Valley) is powered by tech companies, Houston is powered by oil giants, Boston is driving medical and biotech engineering, and New York City continues to be a powerful financial hub. While each of these metro regions is a model for the resto the country, they must adapt to globalized economies moving forward and must find ways to embrace new innovations to keep diversify and strengthen their own economies.

 

Katz and Nowak write, “the critical element is collaborate governance across networks of public, private, civic, and university institutions and leadership. No one sector can alone power a city and metropolis forward in today’s complex and competitive economy.” A single sector is not enough to reliably and consistently sustain an entire city or region. New innovations in diverse fields that share common foundations is required for economic well-being today. In order for cities to diversify and develop new industries in new sectors, a confluence of public institutions, private businesses, involved philanthropies, and cutting edge research universities is key.

 

The public sector has to be able to adapt and adjust laws, rules, regulations, and oversight in a world where every competitive advantage matters. Government must continue to protect the public interest and safety, but needs to allow for the organization of structures that can make real decisions timely. Private sector leaders also need to be involved and commit to place-making, developing the cities where they are located and bringing something beyond “jobs” to a region. Civic organizations and groups can fill the gaps between these actors and help provide funding and leadership initiatives to related to place-making and oversight.

 

None of these efforts will succeed if an intelligent and motivated workforce is not available to connect with the agencies and organizations involved. Research universities play a role in new economies by connecting students with relevant research and helping to get innovation out of the lab and into the private sector. Connecting students with real companies that are taking real steps to make their communities better will build the energy and excitement necessary for an educated and motivated workforce to make economic growth, innovation, and development possible. Some of this I recognize is “pie in the sky” thinking, but it is necessary for future growth. Pushing companies to become Public Benefits Corporations and rewarding more civic minded and responsible organizations is a small and necessary step to move in the direction I described, otherwise, there is nothing to convince companies to make greater investments in place-making rather than just finding a nice place to move to.

When Disciplines Collide

One of the case studies presented by Bruce Katz and Jeremy Nowak in their book The New Localism is Pittsburgh, PA, which has merged academic research institutions with business industry and supportive public policy. Pittsburgh has two major research universities within a block of each other, The University of Pittsburgh and Carnegie Mellon University. Experiences from Carnegie Mellon in the past are fueling the city’s reinvention and powering new industry as research is getting out of the institutions and into new businesses to drive the economic engine of the city.

 

What Pittsburgh does so well, explained by Katz and Nowak, is merge diverse industries and fields to create new innovation. They write, “A convergence economy emerged: a fusion of academia and industry with electrical and mechanical engineering, computer science, and multiple other fields. When disciplines collide, magic happens.” The idea of a convergence economy is crucial to New Localism. Academic institutions have been learning valuable lessons by creating more crossover between their divisions and fields. Bringing together academics who would otherwise rarely communicate is driving fields that previously had stagnated. With two leading institutions in the city, Pittsburgh has taken this lesson out of the academic fields into private industry.

 

Academics on their own don’t have a lot of great business sense or experience, but do have a good sense of where innovation is heading and what might be possible with new technology. Combining their expertise and knowledge with people who understand business and have connections with funding agencies can help lead to scale and commercialization of innovations. This cannot happen without something that creates a convergence between disparate entities.

 

Hospitals today are creating incubator labs to help get new medical advances out of the research lab and into industry. Universities are beginning to merge with private industry to find ways to get innovation out of the academic hallways and journal articles into factories and business. Governments are helping back quasi-governmental networks to share the risk of new innovation and find new ways to fund local developments in technological innovation. Pittsburgh is leading in this field, and cities across the United States are following by finding new ways to engage their academic institutions and industries.

Dynamic Economies

A lot of work from both the Brookings Institute and from the Mercatus Center at George Mason University comes across my radar. Oftentimes the perspectives of the two think-tank centers differ quite a bit, but one area where they align is on local economies. Brookings (a center-left think tank) and Mercatus (a Libertarian leaning academic quasi-think tank) both agree that local economies depend on dynamic innovation and thriving centers where people actually want to be. Both agree that attracting competitive companies and driving innovation requires investments in placemaking, not just tax breaks and financial incentives for firms.

Bruce Katz and Jeremy Nowak (both from Brookings) write, “A globally dynamic economy requires that any locality that wants to thrive must invest in the qualities of place that attract and retain residents and firms, in human capital, and in an enterprise environment that enables innovation and business growth.” Mercatus also suggests that places focus on infrastructure and development to attract firms and encourage people to move to them. Mercatus is likely to encourage this growth in an organic invisible hand manner, while Brookings is more encouraging of using the state to intentionally develop infrastructure and systems for growth and network development.

The important lesson is that economic growth and development require meaningful investments in infrastructure. Human capital is the heart of networks and the key to innovation and growth. In order to attract people and to attract companies that can compete in a globalized world, cities need to make themselves livable and attractive to young and dynamic people. Tax incentives are not enough to attract companies for the long term. A company that is willing to move for a simple tax break, is not a company that is in it for the long run. Stable companies that want to grow and develop in one place will want places that are interesting and offer the amenities needed for a thriving 21st century lifestyle. Companies that are looking to make long-term and winning investments need human capital, and in order to attract human capital they need dynamic places where people want to live and set roots.

Competing in a Global Economy

“While competing in this global economy requires new thinking, many cities continue to pursue zero-sum economic development strategies that subsidize stadia and steal businesses rather than incent innovation,” write Bruce Katz and Jeremy Nowak in The New Localism. Our world’s globalized economy scares a lot of people. Add to globalization new technological innovations and the automation of a lot of jobs, and we find threatened people, threatened cities, and threatened industries. The proper response to such threats is adaptation and change, but a more common human reaction is fearful recalcitrance. Rather than go through reinvention, rather than develope new skills, and rather than embrace new changes, cities, states, countries, and the people within them double down on the familiar and the known, using policy to entrench themselves in the familiar jobs of yesterday.

 

Katz and Nowak continue, “These strategies are rarely aligned with smart education and workforce strategies that give workers the technical skills they need to succeed in growing occupations. And reinvestment in neighborhoods, downtowns, and water-fronts still has a long way to go to make up for decades of disinvestment, depopulation, and decentralization.” 

 

Stealing jobs, offering tax incentives to get companies/sports teams to move, and passing policy which prevents companies from automating away common jobs is not a strategy built for success in a globalized world of changing technology. To be competitive in a world where companies can move easily, where ideas can take root anyplace, and where jobs and technology are changing the way we work, cities and governments need to find new ways to build human capital and new ways to get innovative ideas into the economy quickly. Approaching the world and the economy as a zero-sum competition prevents innovation and encourages the short term thinking that leads to the poor strategies mentioned above.

 

The only way to truly adapt to the changing globalized world is to innovate. Protectionism leads to eventual disruption and greater anger on the part of the people whose industry and jobs are being disrupted. Those who lose out to automation without any training or skill development to help them adapt are understandably frustrated, but the proper response is not to dig our heels into the dirt to pull back on innovation and change. The proper response is to embrace change and help people innovate and learn alongside new technology, new jobs/industries, and new institutions.

Policy Innovation and Diffusion at the City Level

During my Masters in Public Administration, I had a seminar class about theories of the policy process. One of the theories that I enjoyed was policy innovation and diffusion theory in which a policy introduced in one jurisdiction gained traction and was subsequently introduced and adopted within another jurisdiction. Networks, physical proximity, and other characteristics of jurisdictions influence whether or not a policy is likely to diffuse to a new jurisdiction. Policy can diffuse vertically, moving up from counties to states to the national government (or backward) and can diffuse horizontally across cities in a state or sates in a nation or across nations on Earth.

 

In the book The New Localism, Bruce Katz and Jeremy Nowak discuss diffusion at the city level. They argue that, “New Localism reflects a new horizontal rather than vertical mechanism for societies to solve hard problems.” Most innovation and diffusion research that I studied in the United States was related to states. The question is usually, if a state adopts a new law to address an issue, what factors make it likely that other states will or will not adopt a similar law? And how many states need to adopt a regulation before the federal government institutes the regulation nationwide? States have historically been the main laboratories of democracy, but Katz and Nowak suggest that in the future they will not be. Rather than having a state adopt policy and filter that policy down to the counties, cities, and local governments for implementation, it is cities that are now the ones experimenting with new policy.

 

“Cities are constantly crafting new ways to address challenges that are urgent, immediate, and often highly visible. Solutions that are concrete imaginative, and tested on the ground do not stay local for long. Instead, they are adapted to other cities’ situations, tailored to the different economic and social starting points and the fiscal conditions of different cities.” 

 

A big piece of new localism is its non-partisan nature. Flood drainage, snow removal, and local zoning ordinances are not Republican or Democrat issues, they are local issues directly relating to the lives of citizens. This allows people who might otherwise disagree with each other to come together and cooperate to find solutions to the immediate problems of a locality. Focusing on local strengths, weaknesses, opportunities, and threats (SWOT) allows local stakeholders to develop long-term plans and to find innovations to novel problems. Once these solutions have been identified and implemented, city leaders, especially people in the business community, can share their insights and solutions with groups from other cities. These policy innovations diffuse horizontally from city or metropolitan region to other cities and metros. State governments are not the ones innovating. Cities are developing the new networks and innovations that diffuse across state lines, across the country, and even across national boarders. Each solution is adjusted and tailored where appropriate for local contexts and in line with local SWOT analysis. This local problem solving and horizontal city level diffusion is the best current answer to global challenges and problems and to improve the lives of people through new innovations.