How to address the Innovation Deficit

In recent months, policy discussions about how to reignite confidence in the world economy have questioned the focus on austerity measures. Instead, the economic policy debate is placing renewed emphasis on achieving an appropriate policy mix that fosters growth and employment while promoting sustainable public finances.  While concerns related to growing fiscal deficits have been at the forefront of the policy discussion, relatively little attention has been paid to the growing innovation deficit.

Policies to promote innovation should feature prominently in these discussions. Even if innovation cannot cure the most immediate financial difficulties, it is a crucial element of sustainable growth. Future generations will ask whether the stimulus programmes of 2009 and any upcoming initiatives successfully married short-term demand stimulus with longer-lasting growth objectives. They will also ask whether policy makers seized the opportunity presented by the current crisis to put forward-looking measures in place to lay the foundations for future prosperity.

Finally, they will judge whether firms and other innovation actors invested appropriately in the future, and attempt to determine why some emerged from the crisis more strongly than others.

Designing effective policies

Innovation was for long regarded as a company-level activity primarily focused on the creation of new products and processes. This has changed in recent years, raising the complexity of designing effective policies for addressing the innovation deficit. Within firms, innovation now encompasses a range of other aspects including marketing innovations (such as pre-paid cards in mobile telecommunications and single usage sachets of personal care products such as shampoo), organisational innovations (virtual work teams across locations) and business model innovations (social shopping sites such as Groupon).

New actors have also entered the innovation arena. The creation of new innovative enterprises is now seen as a critical driver of growth and competitiveness in economies. However, emulating the successes of start-ups in the US and Israel requires complex partnerships across multiple actors – both public and private. Long relegated to an enabling role, the government has also become an important innovation actor in its own right (witness the impact of e-government services in social innovation).

Finally, the spread of social media and enabling technologies to the masses has given rise to a wave of bottom up innovation online, as witnessed by the frenzied rise of online blogs and content sharing sites. Citizen innovation has arrived.

Closed innovation models

Innovation has evolved but innovation policies have not kept pace. An important reason for this is that innovation mindsets have not changed with the times - both within the private and public sectors. Many CEOs of large firms extoll the virtues of innovation but fail in pursuing radical innovations in face of new technological and market opportunities (Kodak, Sony, Nokia and Xerox to name a few recent examples).

The innovation models of many firms remain closed and only few (such as P&G and Unilever) have successfully taken concrete steps to open their innovation models to ideas from masses of employees, customers and business partners – all outside the traditional confines of the R&D laboratories. Many economies have tried in vain to emulate the dynamism and creativity of innovation clusters in Silicon Valley and Tel Aviv. Replicating these successes have not been easy as global talent and capital are mobile and sensitive to a range of factors including the presence of excellent research universities, friendly immigration policies, high quality of life, low levels of administrative bureaucracy and other factors – all of which require complex coordination across public and private actors.

Citizens in both emerging and developed nations are increasingly empowered to innovate at the grassroots level and are expressing their desire to participate in civic processes and social agendas. However, governments around the world continue to resist change in how they operate and engage with people, at times leading to confrontations with their citizens (the Arab Spring and the 99% movement). The innovation deficit is here and growing.

Turning the innovation tide

An unfortunate consequence of this is lower levels of trust and confidence in government and business. Worse, the ideas and creativity of many are not leveraged to support progress and advancement for all. We have three recommendations for turning the tide:

One, pay heed to the management adage – what is not measured cannot be managed. Our measures for innovation have to evolve to capture the changing faces of innovation. The Global Innovation Index, an initiative launched by INSEAD in 2007 and now co-published with the WIPO is a concrete step in this direction. While not perfect, it does present a broader set of measures to help public and private sector leaders to push the innovation agenda forward.

Two, focus on changing mind sets. Innovation is today a horizontal phenomenon which transcends departmental silos and organisational boundaries. The mind sets of our public and private sector leaders have to reflect this and innovation has to be put on the strategic agenda. Leadership for innovation has to come from the top but encourage participation from all.

Three, invest in the innovation infrastructure at both firm and country levels. WIPO for example, contributes to fostering the innovation infrastructure by focusing on knowledge diffusion. Its Technology and Innovation Support Centres are designed to provide local innovators with access to high-quality technology information, including patent documents.

While much of the discussion will remain focused on the fiscal deficit, it is time to also start addressing the growing innovation deficit. Otherwise, future generations will wonder why we were so short sighted in the face of great opportunity.

Soumitra Dutta, is the Roland Berger Chaired Professor of Business and Technology at INSEAD, creator of the Global Innovation Index and one of the authors of the 2012 report, which was published this week.