The Risks of Dampening Down Innovation Productivity

With many of the leading developed and developing countries experiencing a contracting economic performance we are getting caught in a ‘catch 22’ situation. The more our firms do not expand, the lower the innovation productivity rate. The lower the productivity rate, the tougher it becomes to improve standards of living, boost skills, deepen capabilities, keep competitive and find those more distinctive new products to grow the market before competitors do.

Innovation productivity actually raises the competitive game

Innovation productivity is actually a sustaining engine for wealth and job creation surprisingly. The more you improve speed, efficiency and scale you attract others to adopt similar approaches. The raise in productivity happens when others adopt improved ways to equally compete, the benefits start to spread and this drives innovation productivity.   Here’s how it goes: the more efficient we become, the more effective and that leads to increased innovation opportunities.

Innovative capacity

There is a need to build the capacity to drive productivity. We must recognize that the demographic footprints within our societies are already embedded in the ground; there is not enough resource to generate substantial economic growth longer term. One way to counter this is ensuring constant innovation productivity. We need to keep innovation productivity constantly in our plans to help offset this looming problem.

Can you also imagine if the global economic pie is not set for expanding then the whole environment for competition stagnates?  The more stagnation, then there is less incentive to upgrade, to (re)invest, to optimise and improve.

The knock on consequences of this potential stagnation

There are three parts to increasing innovation productivity. If these do not happen it has a knock on effect that reduces the greater job creation possibilities. It also lets others in that decide this is the time to invest. The three inter-related aspects if you don’t invest are:

1. You limit entry into higher value activities- although this is mostly determined by the markets themselves, if there is no new innovations investments coming through then you limit growth opportunities.
2. If upgrading stops, this affects industries that might already be vulnerable to downturns and disruption. It can reduce the market as competing enterprises can go out of business. Clearly some of this ‘shake out’ is not so bad and even welcomed but as we compete more globally than ever today and any delays in investing in innovation productivity can be fatal, as others seize the opportunity while you are consolidating your position.
3. You certainly can stop the upgrading of the skills and creative potential of individuals if you reduce your economic activity and cut back. Training investment dollars tend to be one of the first places to be hit the hardest. This ‘false economy’ steps you further back in potential to raise your game when the better times return, as you are less equipped to respond.

Actively reducing innovation productivity often stops new process innovation to take place. Innovations that are more process driven, as against product driven, usually offer a higher value, as it is the technology related components, for instance, that gives complexity, and lead to the potential for a higher value than pure product alone. Process driven innovation can add significant value.

Innovation requires competition.

To obtain certain innovation vitality there needs to be active competition. That is why the USA is still such a power house. With its size of internal domestic market as well as its innovation reputation and reach out into the world it is a formidable competitor. What it must do, the same as the countries in Europe, is to keep investing so as it keeps ahead of the curve. Investing in start ups, urging entrepreneurial investment is a good present focal point but it is the sustaining ability within our larger firms to invest that provide the real value-adding wealth that we require to sustain our competitive positions and provide continued security for the economy to grow.

Innovation involves often a very complex process. It is increasingly occurring through diverse and often non-linear pathways, the connections and networks we explore. The greater the intensity of these networks and connections, the higher innovation productivity potential we have. If we stop investing on one, it has a knock-on effect on the other.

Outlining an Innovation Productivity Agenda- some broad themes to investigate and explore.

• The productivity economy will reward the ‘do-it-smarter’ companies that build a better business model and the innovative processes to fit. It is finding the marketable ways to ‘do-it-smarter’ along with the most transformative business models that will win.
• Innovation is a disruptive process increasingly. Just think about the book industry or newspapers and all its competitors. Exploring multiple productivity options by learning what reduces costs provides a promise to improve outcomes significantly.
• Companies need to have higher concentration of knowledge workers and need to seek ways where they can achieve returns per employee. As a rule of thumb around three times higher than those companies with fewer knowledge workers gives substantial competitive edge.
• There needs to be increasing intense focus on consumers more than ever, not just simply producing what was good in the past. Goods have value only when consumers want them. The market conditions are rapidly changing and this has significant implications to productivity and installed capacities. Stay alert and seek out ways to be more flexible.
• The constant quest for adding service into your product innovation mix will continue to push and extend the need for different thinking. The increasing of value and possible lock in has real potential to explore, more in today’s circumstances than ever.
• Seeking out of transformational process flows needs a global search. Finding these, often ones that are within other industries, will potentially unlock new kinds of productivity that others can only copy and simply chase to catch up. Being proactive in this search is incredibly valuable and can lead to redefining how value is delivered.
• The continued push for less regulation will remove some of the present barriers to entry across a global market. This is sometimes a double edged sword and again has its needs to think through of where to invest to raise productivity to keep competing in changed circumstances and different market conditions.
• The increasing competitive pressures today drive productivity activities to look even harder at adopting best practices; this also has its dangers as you are often simply just catching up. You need to look beyond current practices and seek out emerging practices to really get ahead for achieving better potential from innovation productivity investments.
• A final productivity driver will be something all companies need to create, in bucket loads, information and knowledge; that is useful, practical and insightful, to keep being increasingly aware and productive in understanding and to explore experimentation and learn from.

This is the time to actually invest

Investing in innovation productivity is critical. What matters today is the value you can create with a day of work; tomorrow’s productivity is the future innovation capacity investments made that can allow you to not just survive, but even thrive in tough times.

Paul Hobcraft runs Agility Innovation, an advisory business that stimulates sound innovation practice, researches topics that relate to innovation for the future, as well as aligning innovation to organizations core capabilities.