Barriers to innovation in America

by Billy Pittard on June 7, 2011

I keep thinking back to the most recent State of the Union address in which the President emphasized the need for greater innovation in America. I agree completely. I am concerned that America is losing its competitive edge. Something has gone wrong and it needs to be fixed.

Currently, the biggest innovation-killer is the down economy

In this down economy, American business has adopted a strategy of cutting rather than growing to improve the bottom line. There is also a growing fear of more restrictive government regulation and that earnings will be taken by increased taxes or other government means. In this over-riding spirit of the times, innovation isn’t likely to happen.

It’s not just businesses that are holding onto their money; individuals are too. Some of that could be a healthy adjustment to the overspending spree that wrecked credit in this country, but overall, it means that the exchange of money, goods, and services has slowed to a dangerous level. Everyone is holding onto their money because of lack of confidence that tomorrow will allow them to earn more than they spend today.

The most important thing to do now is to restore confidence that opportunity to earn will be restored. Lack of confidence is the number one barrier to innovation in America.

Making money vs. creating value

Another issue we face is the rising cultural value of making money rather than creating value. There’s a huge difference between the two.

Too many businesses are now strictly in it for the money. They see business as a zero sum game in which the goal is simply to get money from your pocket into theirs. How did this come to be and what can be done about it? I believe there are two main factors involved: first, the stock market has replaced actual value with speculative value, and second, too many businesses are run by people who do not truly care about the product or service they provide – they are strictly in it for the money.

Real value vs. speculative value

The stock market has ceased to represent a place for people to invest in meaningful businesses, and instead has become a high-stakes poker game where money is the only thing that counts. Just like a real poker game, there’s usually a sucker, and if you don’t know who it is, it’s you.

And don’t get me started on derivatives. Any realistic assessment of the derivatives market would send any sane person running.

The solution isn’t a bunch more laws and regulations, but rather enforcing the laws we already have, and strictly prosecuting those who violate the laws.

Better education on the part of investors would be in order. Too many people invest in the stock market without knowing anything about the businesses they are betting on. In hindsight, this kind of knowledge might have prevented the dot com bubble and bust.

A healthy, honest stock market would be a boon to innovation.

Emphasis on short-term financial gain

For many companies whose stock is publicly traded, the only thing that matters is their current financials because of their immediate effect on stock prices. This is a built-in deterrent to innovation. The ironic and stupid thing about this is that the stock market is supposed to be about future value – and innovation is all about creating future value. But when business leaders don’t look beyond their next quarterly report, investing in innovation doesn’t rate much of their attention.

The best solution for this problem lies mainly with investors. When investors invest for the long-term value rather than short-term gain, publicly traded companies will return their strategy toward the same. In this scenario, innovation is naturally required and valued.

Too many MBAs and not enough STEM students

Over the last few decades, there has been a shift of our young people away from fields like science, technology, engineering, and math, and a rise in the numbers of people going into MBA programs. If we were seeing a rise in the quality of business leadership in this country I might not complain, but it seems pretty obvious that business leadership in this country ain’t doing so hot. Deserved or not, these young MBAs have a reputation for being driven more by money and power than a will to create actual value. Having worked for many years in the entertainment business, I can attest to the disappointment of pure business people rising to positions of power. Why do you think the Hollywood studios crank out so many crummy movies?

This country needs a major boost in getting young people to embrace science, technology, engineering, and math. It starts with fixing the mess in our public school systems.

And how about a sort of a Hippocratic oath for those who insist on an MBA? Something about doing no harm, creating real value, and treating money as if it is an embodiment of human effort rather than game points seems to be in order here.

The loss of arts programs in public schools

I was fortunate enough to attend public school at a time when the arts were abundantly available. I can vouch that those programs had a huge impact on my creative abilities and critical thinking skills. It has been a tragic thing to see these programs getting cut from our school systems. No wonder American innovation is slipping; we’ve cut creative thinking out of our public schools.

Let’s get the arts back into our schools.

The rise of giant corporations

The fall of small businesses to giant corporations has deeply hurt American innovation. For all of the benefits we receive from “low prices always,” the concentration of business into giant corporations radically cuts off opportunities for innovation.

For example, not too many years ago there was a wonderful tradition of independently owned toy stores across the nation, but now there are hardly any independent toy stores. Instead the toy business is completely dominated by three giant retailers: Walmart, Toys R Us, and Target. This means that for a new toy to be marketed in the U.S., it must be sold into these three giant companies. This leaves no practical way to incubate a product on a smaller scale, rather, it must be introduced and marketed to the entire nation at a level requiring massive advertising and marketing budgets, as well as the investment, infrastructure and logistics to manufacture (most likely in China), deliver product to stores, and support it at a massive level. This is a huge barrier for innovation.

From my first hand experience, I can report that the giant retailer situation is a major challenge to innovators. A few years ago, I invented a revolutionary interactive video system. I worked with a reputable, but smallish toy company to get it to market along with a suite of kids’ educational DVDs. Around the same time, Mattel came out with a competitive system that happened to be a terrible product. I met with the toy buyers at the giant retailers and they agreed that my product was superior. However, they didn’t want to do anything that might create tension in their relationship with Mattel – particularly if it involved supplanting one of the Mattel’s products with something superior, so they carried the Mattel product and turned mine down. This boils down to the simple rule that the giants tend to limit their business to other giants – and the smaller guys are just plain blocked out. It’s a true innovation killer in American business.

With few exceptions, big companies don’t innovate – at least they don’t innovate well. Big companies are full of managers whose main efforts go into making sure that that whatever they manage is not disrupted. True innovation always involves a certain amount of disruption – and managers hate disruption. Big businesses simply are not organized to do new things; they are organized to manage assets – not create new ones. That’s why most innovations come from smaller companies.

If we want more innovation in this country, we need to remove the barriers that stifle small businesses. That includes eliminating excessive government regulation.

A 19th century patent system

The huge hurdle of getting a utility patent is another serious impediment to innovation. It took over six years for the U.S. utility patent to be granted for my interactive video system. This is too long to be meaningful in the real world of modern business.

The U.S. patent system needs to be brought into the 21st century.

People think it’s okay to steal creative work

Creative work may be at an all time low value in America. First, there is a mentality that if something is digital, you shouldn’t have to pay for it. Next, there is an epidemic of spec work in which creative professionals collectively spend more than the value of an assignment in order to competitively win the assignment. And then there is the industrial-strength version of spec work with the benign-sounding name of “crowd-sourcing.” It all adds up to an ecosystem that devalues creative work – including innovation. After a few more years of this kind of environment, we’ll see a lot less creative capability in the U.S. and a lot more coming from foreign countries.

We need to enforce our intellectual property laws, and educate the population about their importance. We need to educate businesses on the value of American creative resources. And for the creative folks who feel they must do spec work, learn to say “no.”

What is innovation anyway?

The word “innovation” has become a hot buzzword in business. It’s kind of like “branding” was a few years ago. And just like “branding,” “innovation” is equally misunderstood. As a practitioner and student of both branding and innovation (AKA professional creativity), I’m always eager to see what smart people have to say about these things. One of the most interesting things I’ve noticed is that most of the people who do the talking are researchers or academics, but rarely are they practitioners. I usually agree with what they say, but often sense a degree of separation from the real world.

So what is “innovation” anyway? The word itself has come to have a weighty business-like quality – especially when compared to “creativity” which might sound to some like hairstyles, kid’s artwork, and basket weaving. In reality, they are two facets of the same phenomenon. Both are about creating something new. The “what” might be a thing or it might be a process. Either way, if you want to nurture the ability of human beings to be innovative or creative, it’s always about creating the right state of mind, and the right conditions. You can read more about that in my series about Creative Collaboration.

A few choice quotes from the great American innovator, Henry Ford

Recognized as one of the most admired individuals of the twentieth century, Henry Ford was responsible for not only a continuous output of ever-better products, but also of processes for their manufacture. Quotes from this innovative industrialist are as relevant today as they were a century ago. Here are some of my favorites.

“What’s right about America is that although we have a mess of problems, we have great capacity – intellect and resources – to do something about them.”

“A business that makes nothing but money is a poor kind of business.”

“Speculation is only a word covering the making of money out of the manipulation of prices, instead of supplying goods and services.”

“The highest use of capital is not to make more money, but to make money do more for the betterment of life.”

“Money is like an arm or leg – use it or lose it.”

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

“The man who will use his skill and constructive imagination to see how much he can give for a dollar, instead of how little he can give for a dollar, is bound to succeed.”

“You will find men who want to be carried on the shoulders of others, who think that the world owes them a living. They don’t seem to see that we must all lift together and pull together.”

“There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.”

“There is joy in work. There is no happiness except in the realization that we have accomplished something.”

“An idealist is a person who helps other people to be prosperous.”

“If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability.”

“Wealth, like happiness, is never attained when sought after directly. It comes as a by-product of providing a useful service.”

{ 4 comments… read them below or add one }

Michael June 7, 2011 at 7:33 pm

The Toy Buyer executive who passed on your invention which was acknowledged as better than Mattel’s was very likely addicted to over-consuming. The executive very likely had children to support, if born after 1985 should never have existed. So they took the safe route.

It’s all laid out, (National Geographic, March 2011, page 72) in the chart graphic of a 3 dimensional cube. One axis measures population, the other measures technology based on patents. The third axis measures affluence based on GDP. Notice how the vertical axis of affluence adds to the shocking exponential growth after 1950.

Billy Pittard June 7, 2011 at 9:36 pm

Michael, I have no complaint with the toy buyers as individuals. I was impressed with all that I met. The problem is with the concentration of so much power and influence with so few companies.

Michael June 12, 2011 at 2:56 pm

It’s very kind of you to clarify your business relationships.

National Geographic, March 2011, has an interesting group of stories that seem to inform this situation further.

“Taming the Wild” on page 34, talks about the domestication of foxes and dogs but seems allude how humans have both domesticated and nomadic traits. The domestication trait in humans has been likely “selected for” over the centuries possibly because it fosters scenarios for humans to work together on large projects and systems. This is important because I believe we’re here to evolve, and evolution is information building on information. Our genetics are information storage and we have now created further information storage systems such as books and computers.

But this same domestication trait leads to overpopulation and over-consumption. The nomadic, wild hunter-gatherer traits seem to lead to more innovation but has been “selected out” over recent centuries. We have plenty of evidence to show how smaller companies consistently provide more innovation than larger over-consuming organizations. We may need to understand how these two behavioral traits can work together in a positive way.

It requires a careful, dynamic balance of management for both traits if we are to successfully evolve with the resources we have. Now for all the fear-mongers out there, I am not suggesting Eugenics. I am suggesting we understand how these traits matter in the larger picture and we manage it somehow.

Preston MacDougall August 4, 2011 at 5:13 am

The fate of small, independent toy stores is all too sadly illustrated by my brother in law, whose store Wowy Zowy Toys won best toy store in Canada, then went bankrupt. They specialized in toys that inspired creative and critical thinking skills, such as kits including toy cars that ran on solar-powered fuel-cells.
With regard to STEM education, Mattel isn’t helping. The chemistry sets available in Toys R Us are a bore compared to the Gilbert chemistry sets of what may have been our most technologically innovative era. These two thought streams are combined at the Web site entered.
And, by the way, congratulations on your new appointment at MTSU! I hope you can help us secure support for a new science building that will inspire more young people in Middle Tennessee to choose STEM careers.

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