Mind The (Widening, Accelerating Innovation) Gap

Mind the Gap - ink and wash

This is a meditation on the economics of innovation and minding the innovation gap.

It started when I read this article,Productivity Is Soaring at Top Firms and Sluggish Everywhere Else on the Harvard Business Review site.  The article has a terrific and terrifying graphic that shows the widening gap in productivity between firms that are innovating and their competitors.

Perhaps more importantly, the gap between the globally most productive firms and the rest has been increasing over time, especially in the services sector. Some firms clearly “get it” and others don’t, and the divide between the two groups is growing over time.

The strength of global frontier firms lies in their capacity to innovate, which increasingly requires more than just investing in R&D and implementing technology. It requires the capacity to combine technological, organizational, and human capital improvements, globally.

What the author, Chiara Criscuolo, calls Frontier firms are organizations that are experimenting and trying new things at the edge.  This got me thinking that it maps well to arguments I have made before regarding agility, the freedom to fail as the real strategic business value of public cloud.

The piece neatly makes the  case that “cost savings,” if it comes at the cost of agility and freedom to experiment may produce “false savings” when they cause the firm to fall behind.  Unfortunately, many senior leaders don’t formally track opportunity costs or productivity sink-holes the way they track procurement costs.

This translates into the internet meme that says: “Spend a $500 and get three levels of approvals and controls.  Call a standing meeting with 20 people? No one bats an eye.”

These “false savings” are effectively borrowing from the future to make the present seem rosy.

I’ve seen these behavior in sales organizations, where deals are “pulled-in” from future quarters to make this quarter look fine. I’ve seen it in engineering groups, where short term hacks result in “technical debt” that will be expensive to fix later.

You’ve probably experienced it when you get hidden fees from your bank or airline, which as clearly chosen “cash now” at the expense of customer satisfaction and/or brand identity.

Unfortunately, that debt does not show in the balance sheet where it could be controlled and balanced, but it is there. It will show up as increased costs of sale and loss of margin. Or product falling behind competitors and losing market share. Or customers moving to an online digital service with clear consumption pricing.

Whether the the firm chooses to compete with product, customer or operational innovation, there needs to be a “speaker for the future”– call them Chief Technology Officer, or CIO or Innovation officer. The name doesn’t matter; what matters is that it’s necessary to have someone(s) helping the rest of the organization guide the present decisions and map them to the future, to speak for the future.

CTO’s sometimes are also asked to be chief cheerleaders and marketers — that’s part of the job but that’s not the entire job.  The core part of the job entails getting deeply involved in the design of products and services, articulating a vision and an innovation road map, and helping senior leaders understand the trade-offs between now and later.

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