03/15/2012 08:59 am ET Updated Dec 06, 2017

(EXCERPT) Need Speed And Greed: We Are All Innovators Now

Excerpt taken from "Need, Speed, and Greed: How the New Rules of Innovation Can Transform Businesses, Propel Nations to Greatness, and Tame the World's Most Wicked Problems" by Vijay V. Vaitheeswaran, China Business & Finance Editor, "The Economist" (Harper Business, $27.99)

Now, more than ever, innovation matters. There is an urgent need for solutions to the wicked problems of the twenty-first problems century like the threat of global pandemics and the middle class squeeze. Innovators from unexpected corners with unfamiliar pedigrees are disrupting established business models and upending entire industries at breakneck speed. But if entrepreneurs, who are the vital carriers of innovation, are rewarded for solving socially important problems, greed can indeed do much good. By embracing the new rules of innovation, we can then turn today’s wicked global crises into unprecedented economic opportunities.

So how to win in this coming age of disruptive innovation? Sergey Brin, a billionaire co-founder of Google, insists that “Silicon Valley doesn’t have better ideas and isn’t smarter than the rest of the world” but thinks it has the edge in filtering ideas and executing them. That magic still happens and attracts people from around the world who are “bold, ambitious, determined to scale up, and able to raise money here actually to do it.” Brin points to Elon Musk, founder of Tesla Motors and SpaceX, as an example.

Musk moved from South Africa eventually to settle in California to make his fortune. Musk says his equation for success is: drive times opportunity times talent. Unlike many countries, he insists, America is never satisfied with the status quo. “There is a culture here that celebrates the achievements of individuals—and it is too often forgotten in history that it is individuals, not governments or economic systems, that are responsible for extraordinary breakthroughs,” he says.

From stagnation to rejuvenation through innovation

Musk has put his finger on something important in describing his own path to success forging not one but two firms that are disrupting entire industries (space and autos). His formula for success as an innovative entrepreneur points nicely to a manifesto for flourishing in the Ideas Economy.

Start with drive. Jessica Jackley knows something about entrepreneurial drive; indeed, despite her youth, she has already helped to make the world a better place. She co-founded Kiva, a path-breaking peer-to-peer Internet outfit that lets people anywhere lend small amounts of money at affordable rates to aspiring entrepreneurs in the developing world. Ordinary people in distant parts of the developed world, sitting comfortably at their laptop computers, have been granting microloans in such small amounts as $25 to the entrepreneurs they wish to support. The firm has already channeled $200 million or so to the poor this way, and has a repayment rate above 98% to boot.

Not content with the success of one transformative firm, Jackley—who is still in her 30s—is busy building another. With a former classmate from Stanford Business School, she has launched ProFounder, a web platform to help entrepreneurs in America “crowdfund” more efficiently. Most startups get most of their early money not from venture capitalists and certainly not from banks, who are too risk averse to back upstarts: they get it from a circle of intimates known affectionately as friends, family, and fools. Jackley knew from personal experience that this is an extremely stressful process made more so by the informal and awkward nature of these early contributions (did Uncle Frank really promise you $5,000 for your startup at Thanksgiving, or was that the wine talking?). There are complex regulations governing such investments that vary from state to state, making life more difficult. Her for-profit outfit has done all the donkey work so that aspiring entrepreneurs need only to tap their networks for money via her platform, and the firm’s automated systems deal with most of the paperwork. Both parties in Congress and the White House now support legislation that would make crowdfunding easier.

Ask Jackley what it means to be an innovative entrepreneur, and she offers answers that cut to the heart of this book’s arguments about the democratization of innovation. First, she defines innovators as those who see possibility in the world and believe improvement is possible. But she warns that ideas, while great, do not add up to much: innovation needs entrepreneurship to catalyze change: “as an entrepreneur, you must act every day on execution.” Everyone has the talent to be an entrepreneur, she thinks, but not everyone will like the lifestyle.

Reflecting on the decision to leave Kiva, which appears poised for spectacular growth and innovation (it could evolve into the first credit bureau for the world’s poor, for example), to start ProFounder, she confesses that she is absolutely petrified of failure. “The first time you can get lucky, but the second time you have to be smart…and that’s a high bar!” So why leave the comfort and success of Kiva? “I wanted to apply Kiva’s lessons to another big, but similar, problem,” she says. “I wanted to build something again.” The drive to leave behind comfort and security to create a disruptive new organization even when confronted by powerful obstacles and a high chance of failure is the true mark of an entrepreneur. And by radically simplifying the early funding process for other entrepreneurs, she is contributing to meta-innovation— the ongoing innovation in how the world innovates.

The democratization of innovation promises to be an extraordinarily powerful force shaping the Ideas Economy. In future, the difference between success and failure will often be determined not by lack of access to capital, markets, talent, or other conventional obstacles. In the age of disruptive innovation, resourcefulness will matter more than resources--and success or failure will be determined inside the mind of the innovator. The leading countries of the world, especially the United States, may be entering a period of what has been called “frontier” economics. As older, easier sources of growth have started to dry up, knowledge-age economies are relying ever more on innovation to save the day. That requires startups to push the boundaries of technologies, business models, and social norms.

To tackle the world’s most wicked problems, we need a range of tools in the toolbox—government policy, incentive prizes, industry coalitions, and so on—and the challenge for the new generation of entrepreneurs will be how to coordinate all this. Those companies and countries—not to mention friends, families, and fools—that remove obstacles from the path of the trailblazing innovative entrepreneurs will do better than those who do not. And if you are a person with a great idea but no business plan, you have no longer have an excuse for sitting on the fence. Thanks to such advances as web-based crowdfunding, even very poor people in hardscrabble parts of the world are now changing the world. So why are you still an innovator-in-waiting?

If the answer is that you do not know where to look for opportunity, consider the advice given by the OECD, the official think tank of developed countries: the greatest potential driver of innovation and source of future productivity gains may well be intangible capital. It is easy enough to spot the tangible capital in an economy, be that capital equipment and machinery or buildings and infrastructure. But in the Ideas Economy, much of the value of firms is not captured on the balance sheet: it walks out the door at the end of the workday, trapped in the minds of the best employees. In today’s open innovation ecosystems, one form of intangible capital is the knowledge networks that link decentralized nodes of open innovation. Of all the forms of intangible capital that look likely to drive future growth, the agency thinks the most promising are advanced software, big data, and analytics, and design.

Those seem a bit prosaic at first. So to get a sense of the hidden opportunity here to change the world, take a closer look at design thinking. Tim Brown, the boss of IDEO, a leading design consultancy that helped shape Apple’s first mouse, does not have solutions to daunting global problems such as climate change, epidemics, and persistent poverty. But he believes he knows how to find them: with design thinking, by which he means the open-minded, no-holds-barred approach that designers bring to their work, rather than the narrow, technical view of innovation traditionally taught at many business and engineering schools. Firms that think like designers, which means embracing experimentation via rapid prototyping and fast failure, stand to win huge new markets and profits.

A holistic approach to tackling problems produces more breakthroughs than the MBA’s traditional urge to make incremental improvements to existing products or processes. The traditional uncompromising focus on predictability and quality-control exemplified by Six Sigma, a form of statistical analysis popular with manufacturers, can lead to “analysis paralysis” by discouraging sweeping changes that may cause disruptions in the short term but yield big benefits in the long run.

An example of how design can drive innovation and create opportunity is the democratization of manufacturing that is underway today. In the past, because the essential tools of the trade—think lathes, injection-molding machines, computer-aided design systems—were so expensive and large, only companies with deep pockets could aspire to design and manufacture new products for the global market. No longer. The rise of cloud computing and powerful design software, the miniaturization of essential hardware, and the rapid advance of 3D printing are fomenting a manufacturing revolution. At the forefront of this movement is AutoDesk, a Californian software firm that has for decades produced expensive 3D software design tools for high-end applications (including designing Boeing aircraft and Hollywood films like “Avatar”).

Without the knowledge of Carl Bass, AutoDesk’s boss, several younger employees developed cheap and cheerful design applications for the iPhone and iPad that have become runaway bestsellers. He confesses that if he had been asked, he would have crushed the project out of fear that it might weaken the firm’s high-end brand. In fact, millions of new users are now familiar with his brand and existing customers are asking for more such applications. He argues that the spread of such affordable design software, inexpensive digital fabrication labs, and outfits like California’s Tech Shop (which aim to do for manufacturing and design equipment what Kinko’s did for photocopiers) means everyone can join the “maker” revolution. Bass goes so far as to say that there will be a renaissance in manufacturing in America—“as long as we redefine what manufacturing means.”

And what about talent? Elites have long sniffed that when it comes to talent, either you got it or you don’t—but that view no longer holds in a world of democratic innovation. Every one of us has had an Aha! moment, after all, and the right sort of education and skills training can develop intangible skills and unleash the innovator trapped in side. At the level of many national economies, there is a massive talent crunch coming due to demographic trends that will produce a shock not seen since the Middle Ages. By 2050, experts predict that the global population of those over sixty is predicted to exceed those under 15 for the first time in history.

There is no easy answer, so countries need to try out a mix of policies to deal with the problem. Part of the solution is to encourage more skilled migration, as increased talent mobility is part of the solution. We must see the flow of talented migrants as Brain Circulation, not Brain Drain. Those countries that turn their backs on immigration, due to xenophobia or other factors, will risk losing out. Anticipating future skills shortages and encouraging public-private partnerships to retrain workers will help, as will tax incentives for businesses to invest more in training workers. Companies will also have to redouble efforts to diversify their workforces, scouring previously neglected demographics.

However, the key to the development of talent lies in the hands of the individual. On this front, there is bad news and good. The bad news is that in many countries, official school systems and universities will not prepare you for the 21st century innovation economy. In America, many public schools have notoriously been falling further behind international benchmarks for quality. But there is also cause for concern in Asian countries that celebrate Tiger Moms and produce high-scoring students, because much of the education in such systems emphasizes deference to authority and rote learning; critical thinking, a willingness to challenge conventional assumptions, and creativity often lose out. In the Ideas Economy, there is reason to think that Disruptive Dads will beat Tiger Moms.

The good news is that thanks to the new tools of the information age it is now easier than ever to take charge of your own education. If the local school system does not provide strong science education, go online and contract an inexpensive tutor from Kerala. If your child’s math skills are falling behind those of her peers, improve them using the Khan Academy’s excellent free lectures on the Internet—as over one million students already do, spurred on by the innovative website’s clever use of motivational tricks copied from the video gaming industry. If it is more advanced skills you wish to top up, check out the many free courses that universities like M.I.T. now place online. If ideas and argument are more your cup of tea, follow the provocative series of free T.E.D. talks online and in real life at the thousands of T.E.D.x events now popping up around the world.

In the age of disruptive innovation, the competitive edge may well go not to the smartest or wealthiest but to those who best learn how to keep on learning throughout their lifetimes. This will not be easy, as the top-down system of mass-produced education that suited the industrial revolution has become obsolete but no coherent and clear system has risen to take its place. A fancy degree from Harvard Business School may not mean the same any more, argues Clayton Christensen, a distinguished HBS professor who wrote the seminal works on disruptive innovation, observing that even business professors like him are becoming obsolete thanks to online offerings. Reflecting for a moment on the prospect of the very same sort of disruption he has championed for a lifetime putting him out of business, he smiles broadly. That would be a fitting tribute to a man who, along with the late Peter Drucker, has done more than anyone to advance thinking on innovation.

Decades ago, at a time when many thought innovation was mostly a fringe activity to be relegated to the long-haired creative types, Drucker saw “innovation and entrepreneurship as purposeful tasks that can be organized–are in need of being organized.” Though it may never become a quantifiable science, innovation is indeed evolving rapidly from a dark art to something resembling a mainstream practice. As the shroud of mystery fades, the process is becoming more accessible and a useful set of tools and rules are emerging.

In that spirit, here are a handful of the most important new rules for the age of disruptive innovation:

THE DISRUPTIVE DOZEN: The New Rules of Global Innovation

The very way in which we innovate is being reinvented, with wonderful but often unexpected consequences. If you want to prosper rather than perish in this coming age of disruptive change, you need to master the new rules of global innovation:

1) Innovation is not a zero sum game : China’s rise does not mean America’s decline—but the rising tide will lift your boat only if you patch the holes in your vessel first
2) Think local, act global: Many of this century’s thorniest problems—be that food and water scarcity or health scares—seem like local problems. In fact, they often arise from failures in national and global governance. Creative coalitions, regional approaches, and systems thinking are the way forward.
3) Turn risk into reward through resilience: Leaders must realign incentives for the private sector to build resilience into future infrastructure and supply chains. The key is to shift from brittle, top-down systems to modular, flexible approaches that are more future-proof.
4) Open up and say…Aha!: Ivory towers are so yesterday. Open and networked innovation recognizes that the smartest people in your business no longer work inside your firm.
5) Be the dinosaur that dances: It may be unsexy to be the incumbent firm in an industry undergoing disruption by nimble upstarts, but that is no reason to stand still. Leverage your legacy assets, and ditch outdated business models even if they are profitable today but do not have a future.
6) Elegant frugality trumps conspicuous consumption: The fallout from the great recession is clear. Consumers in developed countries, and not just poor folk in Asiaemerging markets, want products and services that offer better value.
7) If at first you don’t succeed—fail, fail again: Transform your attitude to risk-taking so that you celebrate fast failure. It is not easy to fail elegantly.
8) Forget Father—it’s the user who knows best: Bottom-up innovation works much better than the top-down kind. When customers help you create your products and services, the resultant ecosystem gives your firm the edge.
9) Go the whole hog: As the life-cycle costs and “externalities” involved with economic activity get priced into goods and services, systems thinking will beat silos.
10) The path from stagnation to rejuvenation runs through innovation: Easing the middle class squeeze seen in many developed economies will mean improving productivity gains and boosting economic growth. The best way to do this is to invest in the long-term drivers of innovation like education, research and development, and smart infrastructure.
11) Put purpose on par with profits: In the Ideas Economy, money will no longer be a sufficient motivator of talent. Look to emerging business models of social entrepreneurship and hybrid value chains for inspiration.
12) Keep relearning how to learn: Each of us has an innovator trapped inside and today’s innovation revolution promises to be much more democratic than the past—but you cannot rely only on traditional schools, fancy diplomas, and employers any longer. You must constantly work to figure out how innovation is evolving so that you can participate and prosper.

The democratization of innovation, once the preserve of technocratic elites in ivory towers, offers hope that the grand challenges of this new century can indeed be tackled. Ever deeper waves of innovation could, in time, even transform a world of scarcity and conflict into one of abundance and prosperity. That is because as the potential of seven billion innovators-in-waiting is unleashed, mankind will at last be tapping the one natural resource that we have in infinite quantity: human ingenuity.