The Positive and Negative Equity of Innovation Cultures

By: Haydn Shaughnessy

The culture of innovation can mean many things. Most obviously it can refer to how a company creates an innovative culture, which is different from being in an innovation culture. I want to look at how innovative cultures intersect, and how important this is for what companies can achieve. The two concepts I want to introduce are: positive and negative equity in innovation cultures. How do you create the former and shed the latter?

Creating positive equity in innovation

Here’s an example of positive equity created by policy. In the mid 1980s the European Commission decided to pursue a policy of aggressively supporting the broadband and mobile communications sectors . This episode is hardly documented online but it marks the single biggest achievement of European industrial policy that it lead to European dominance in mobile.

The reasoning was, Japan and the USA had won in information technology. Europe began referring to information and communications technologies. In a very important sense, they accelerated broadband but particularly mobile standards, mobile industry capabilities and consumer adoption and laid the groundwork for two decades of wealth creation around these technologies.

Europe is a leader in both and has been for twenty years. When people innovated in mobile, until recently, it was very much a positive equity investment. An important policy point though is that, leaving aside policy errors, from the mid-1980s onwards Europe set ambitious targets for broadband and mobile. Today is sets generic targets that are comparatively meaningless: such as to be the leader in knowledge based industries or in innovation.

Since 2005 the United States has begun to catch up in mobile and latterly has brought to bear its own irresistible innovation forces into location-based services. Now most European players in mobile have a Silicon Valley office!

Definitions

We need tools to assess which innovations add and which subtract from the purpose of human collaboration. That’s especially true when resources are constrained.

We collaborate to create wealth. We work together to refine our wealth creation tools. Innovations are particularly valuable when they contribute to the ways we can create wealth. Positive equity exists when we contribute to this process, of developing our wealth creation capacity. Negative equity exists when we start to subtract from it.

Too much innovation is of questionable value in this definition. For example does the aim of creating genetic cancer therapies add either to wealth creating capacity or to wealth in general? Would preventive education combined with a renewal of innovation in food and cosmetic products be a cheaper and more powerful way of dealing with carcinogens?

Do location-based services in mobile contribute to our wealth creating tools? Given that they are driven by the desire to create targeted, contextual advertising it’s possible to contend they are not a priority.

Do intelligent highways add to wealth creating capacity? 1.2 million people die each year on roads around the globe. The vast sums spent on innovating in safety systems however could be saved by innovating around the supervision of very low speed limits.

Features of a positive equity innovation culture

These are the features of a positive equity innovation culture:

• A young expanding industry
• An industry that adds to our wealth creation capacity
• An industry that changes all lives and leads to economic and social transition
• A high margin industry
• One that changes the underlying model of wealth creation.

The broader picture in innovation culture

I want to make a few statements about that transition in the interests of generating a debate about innovation culture.

Loss of confidence and direction.
Europe has lost confidence and direction in its innovation efforts. European policy makers know too little about vertical industries and make generic appeals to our innovation culture without using their power to shape innovation culture in verticals. There is no real target other than the most general ones: for example to be the most innovative region, to lead in the knowledge society. These cannot act as calls to action. The United States assumes its inheritance of an innovative culture will see it adapt to the current structural changes in the world economy. It won’t without policy makers setting a clearer direction.

The negative equity culture.
Companies are currently being asked to innovate in non-innovative cultures, in industries where there is negative equity in innovation culture. That is why they are finding it difficult. To innovate in some areas of fast moving consumer goods is almost a betrayal of ethics, for example in food additives. This is what negative equity means. You can innovate but the conditions are essentially negative. Perhaps more controversially than food, mobility is in danger of becoming a negative innovation culture. We see innovation in areas like location-based services but the reality is it is difficult to envisage how location-based services add to the wealth creating capacity of humans. In that sense  the ITC revolution is played out; what’s left is how to share out the spoils from a maturing industry. On the face of it you can argue that mobile has twenty years to play out. But the nature of a maturing industry is its profitability and cash generation capability. The positive equity phase now belongs to embedded applications and machine to machine commerce.

Setting the scene for positive equity

The pre-conditions for innovation were set fifteen years ago when Europeans lobbied for and successfully achieved standards setting in telecommunications, paving the way to open systems that we all talk about now – open began in smoky committee rooms. That is now happening in smart grids.

To make companies innovative in mature industries, as mobile is becoming, is a different process from creating innovation in innovative, transitional cultures where there is huge positive equity.  Europe and the USA need to identify the transitional cultures and create competitive environments around them quickly.

Example: the auto industry

Here’s an example of this in action. Two years ago at the peak of the global economic crisis the car industry faced its own crossroads. Advocates of market-driven economics argued that the car industry, particularly in the USA, should be allowed to die a natural death; Government should permit the market to reallocate resources away from metal to more services innovation.

With honourable exceptions like BMW, the auto industry had in fact been in a condition of mature decline for some years – crudely put, the only question was how auto makers in advanced economies would hold back the wave of competition from newly developed countries. One way to do that was to continually raise the bar with incremental innovations around air dynamics, comfort levels, and ride responsiveness. The car industry managed to be both innovative and declining. This is like holding negative equity in a property.

Only two years later however, the car industry is beginning to transform this negative equity innovation culture. And part of the reason is leaders in the sector have managed to hitch autos up to the positive equity in smart grids. A reasoned ‘roadmap’ for autos now is:

The autos innovation roadmap

Large scale innovation around the car as an apps platform, integrating a variety of mobile devices, developing the chassis as an innovative centre, and developing car-to-cloud services.

Medium term integration into the smart grid and innovations that will bring ubiquitous data from the home, office and mobility together, making all those services more pervasive, simpler and more accurate (www.news.cnet.com).

A variety of wealth-shifting innovations around car use and car ownership concepts, moving away from ownership as a primary attachment to the car towards various subscription and sharing models.

The car in other words is being led towards a new wealth creation paradigm that involves us thinking about mobility across real and virtual space and rethinking ownership, a sure sign of a new wealth creation paradigm emerging. Ford, from being nearly down and out is a pioneer of object social networking (www.wired.com).

Shifting cultures

The larger point I want to make about this is – successful innovation managers in the auto industry have completely shifted the innovation culture, away from negative equity to positive equity, and made it much more likely that managers will do successful incremental innovation in conjunction with a growing ecosystem. It will be an exciting time to innovate in autos. Three years ago it was not.

The responsibility we all face is to reconstruct other sectors in the same way – it has been amazingly straightforward in autos – not least because the charge has been led out of Silicon Valley where the infrastructure for cultural change – large pro-change websites like Techcrunch and GigaOM – is plentiful. Innovation management needs to be a lobbying force for broader transitional factors, moving their businesses from positive to negative equity.

By Haydn Shaughnessy