Innovation is the Imperative

The second session of the day featured Vijay Vaitheeswaram, a correspondent for the Economist, commenting on the challenge of sustaining value in a drastically altered economy.

Even with the unraveling of the Reagan/Thatcher era In today’s economic situation, he said, the real issue that history will focus on 100 years from now will be how the world dealt with the rise of the developing economies – especially those of the BRIC countries. With a billion and a half people in these countries about to enter the middle class at the same time that the developed world is dealing with the financial crisis and the impact of aging populations, there are tremendous challenges ahead – not the least the impact on resources usage and climate change. The issue will be how we navigate this “perfect storm” – and there are some lessons from what happened in the 70’s. Then as now there was serious economic malaise, with many differing options . Back then, for example, the Club of Rome report predicted a major commodity shortage – but it never materialized. The reason? According to Vijay – innovation, and now like then innovation is imperative.

With innovation, resource utilization becomes much more efficient. For example, old technology in a new context can create enormous value. And value is an important aspect of innovation. Invention and technology are not nearly as an important part of the innovation process as normally thought – rather it’s the value that innovation can deliver. People used to say the golden age of invention has come and gone – but in fact the opposite is true. If you think what can happen if all the school children are equipped with the tools to fully utilize their brains – you’d have 6 billion innovators.

So if the only way is innovation, how can firms innovate better? Vijay believes that in this extraordinary moment of change the rules are being rewritten in ways that for the truly innovative companies are being reflected in agility, openness, and a culture that’s open to assuming risk. He gave compelling examples of agility at work – P&G for example has cut product development cycle time in half. On openness, the best companies are willing go there to try and tap into the best of brains around the world – e.g. using the internet to find solutions in an open innovation model.

In the questions session Vijay was asked whether the government involvement in industry that’s has come about with the economic crisis could lead to the stifling of innovation. The short answer? Yes. As well, the risk is that Governments will start to pick winners. In response to a question on carbon pricing, he was clear that it’s coming -the only question is how. Today’s price is zero, and that’s unsustainable and unjustifiable. The pricing has to be phased in slowly with long term certainty and the funds raised recycled back individuals as a refund so that it’s revenue neutral . In that sense the specific price don’t really matter if the direction is right.

In final comments, Vijay emphasized protectionism is a very dangerous game to play – in the current crisis the last nail in the coffin would be the collapse of the global trading system. And keep connected with the savvy businesses globally, especially from the BRIC, because they’re going to be your competitors tomorrow.