The Great Innovation Debate

October 18, 2005

Tom Friedman has made a literary career from writing about the way globalization changes business and culture. His most recent book, The World Is Flat, in particular makes the point that the playing field in business and innovation is leveling out, becoming flatter as time goes along. Friedman’s points elicited a range of criticisms, but one of the more pointed ones was offered recently by Richard Florida in an essay in The Atlantic Monthly, The World Is Spiky. Florida takes Friedman to task for his claims about the impact of globalization on a range of topics including population concentration, light emissions, patent filings, and citations to scientists. Yet, his most poignant critique is over Friedman’s claims about innovation. Friedman claims that, “In a flat world you can innovate without having to emigrate.” In other words, Friedman thinks that globalization is transforming design and development of services and products just like it has manufacturing and service delivery, i.e. offshore call centers. Florida is not persuaded. Using visualizations of his key topics, he argues,

The world today looks flat to some because the economic and social distances between peaks worldwide have gotten smaller. Connection between peaks has been strengthened by the easy mobility of the global creative class—about 150 million people worldwide. They participate in a global technology system and a global labor market that allow them to migrate freely among the world’s leading cities.

John Hagel jumped into the middle of this debate, attempting to balance out the differences between Florida and Friedman. He sided with Florida’s assertion that urban centers are growing in their attraction to innovators, against Friedman’s implicit point that you don’t have to move in order to participate in innovation. Hagel contends that,

To the extent that Tom believes that cities will become less important as centers of economic growth, I would disagree with him. So I would amend his observation and say that, if you want to innovate and you are not in a major urban area, you might want to emigrate to one of these areas, even in a flattening world. Even though you can participate in innovation from more remote locations, if you want to develop your talent more rapidly than others, you are more likely to be able to do that in a major urban area.

It seems to me though that all three of these very smart people miss an important issue when it comes to innovation. The key question to ask about innovation is what benefit it provides to the businesses that pay for it. You might think Friedman’s point on innovation is correct for no other reason than its cheaper to hire educated staff with technical and creative skills in India and China. No doubt, that is correct. But, cost isn’t the basic concern for organizations that innovate better. It isn’t clear at all that spending less to buy more time from creative people in R&D will change the impact of innovation on business results. The cost and benefit of innovation is more closely tied to the organization of business processes and dialogue with customers than the amount of creative time bought.

A recent study on the top 1000 Global Innovators by Booz, Allen, Hamilton indicates that no statistical relationship exists between the number of patents issued to an organization and its actual business results. Florida’s reliance on patents as an indicator of innovation probably points to a spurious relationship. The report concludes, “when a company is seeking to grow through innovation, it’s more important to develop a robust business model and good cross-functional capabilities than to boost the R&D budget.”

By cross-functional capabilities the authors mean cooperation between R&D, marketing, sales, service, and manufacturing. Concentrating innovative, creative people in urban centers, or leveling out the playing field so that innovators don’t have to emigrate within a country or between countries to work on innovation projects, does not speak to the key issues in designing processes that increase the effectiveness of collaboration. Rather than focus on whether the world is flat or spiky, serious attention is better paid to how global enterprises organize collaboration and what limitations place and cultural context impose on that organization.

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