The Conundrum for Innovation

Innovation is the solution to our most serious problems. We must do more with less in new ways . However, there are significant impediments to innovation as author and entrepreneur Sramana Mitra pointed out in her recent article an Innovation Conundrum. Much of this relates to the distortion of the relationship between risk and return.

Our capital system is a case in point: it compensates speculators disproportionately above creators. Compounded by significant risk-aversion, venture capitalists are acting like bankers, and Wall Street remains obsessed with quarterly results discouraging long term R&D. Hardly an environment for innovation. In distributing capital the middle men of Wall Street have been grossly over compensated for the service they provide - taking one group's money at one price and selling it to another group at a higher price. VC’s had been getting outrageous compensation in management fees, even when generating negative returns. As with many industries this is unsustainable because there is no value being generated. More importantly it drives away the opportunity for innovation because the need for immediate return and payment of middle men trumps the patience development requires and the rewards given to those who create it.

Eric Benhamou, former CEO of 3com recently commented that, “The preferred, risk-limited model of the venture capital industry will leave many important problems unsolved, many large-scale opportunities unaddressed and many radical innovators unfunded.” However, there is hope.

"A willingness to take intelligent risks and try something new is critical to both innovation and entrepreneurship. But the last decade has seen an increasing focus on short-term returns through risk taking without questioning or transparency to even understand the real level of risk. As a result, we replaced the foundation for real economic growth with the illusion of prosperity," writes Judy Estrin, a long-time entrepreneur and author of Closing the Innovation Gap. In the end a new system will emerge with the rewards of prestige and money increasingly going to the value creators, not the speculators. See Judy's brief outline of thinking about the Innovation Gap.

Is Caffeine Google's Answer ?

The challenge with being “best at” and “BIG” is how tough it is to stay ahead of the competition. Even for a firm like Google. What made you innovative in the past can become less valuable and what a maturing changing market perceives about your product can become more important. Holding onto market share isn’t the same game as creating innovative solutions that create new markets. Google is starting to consider the implications surrounding this reality.

Google's most recent secret project Caffeine was announced yesterday but users will not notice any differences between the old technology and the new; at least not for a while. The purported goal of Caffeine is to index content faster. Google claims it is trying to figure out real-time relevant search, but that’s not the entire story.

So what is the new Caffeine project all about ? User perception or in other words “Marketing”. Microsoft’s “Bing” touted its search engine enhancements, focused on a few key channels, had positive reviews and partnered with Yahoo. If Microsoft had not created a new “Bing” brand no one would have noticed the change. Remember General Motors’ Saturn ?

Remember Wolfram Alpha, which was going to change the search world and catch Google ? Wolfram Alpha says it provides users “intelligence” and Bing claims the same thing. They saw Google’s weakness and attacked it.

What this proves is that for big companies like Google, you just can’t innovate under the radar anymore. Its becoming more about the market and the user and this is where perception becomes more important than the technology, hence Caffeine.

See Google’s new Caffeine product at http://www2.sandbox.google.com. Watch Jim Boot's excellent description of the new product on the video below.

How Do You Compete ? Its All About the Organization

The rate of change in the world is very rapid. What you or your team might have become adept at can quickly evaporate. If your organization is unable to stay on top of radical change, it will be unable to stay ahead of new or existing competitors. Staying ahead means having an organization able to learn and get better. Unfortunately, this can run counter to leaderships abilities, often based on dated beliefs and linear thinking perpetrating the status quo. Brutally confronting facts, being straight forward and having people with the accumen and ability to understand the best path is a rare combination; hence the reason applications of learning organization disciplines are uncommon today. Watch Harvard Professors David Garvin and Amy Edmondson describe how learning organizations generate and act on new knowledge enabling companies to stay ahead of change and the competition.

What is So Great About Private Health Insurance ? Ask Wendell Potter

Most significant challenges deserve objective analysis based on economic principals. Supply and demand being at the core. Things costing to much ? The explaination is usually a lack of competition or artifical restrictions among alternative options for buyers. Not enough supply ? Barriers to entry , government restrictions or diminishing prospects for profit can be at the root. Interestingly, when it comes to health care what people pay for and what they get is at the core of the problem and private insurance intermediaries are profiting from market inefficiencies. In the end the private for profit insurance industry delivers no real or sustained value and this is central to the health care crisis because they slice the pie with the main objective being their profits, not a uniform allocation of risk and costs among populations to make the cost for all lower. This runs counter to the purpose of insurance, particular for a risk that we all are subjected to, our health. This is why the public option being debated in Congress isn't the answer to impact costs and coverage; what is is universal coverage that eliminates private insurance.

Recently Wendell Potter shared his views as a high ranking former insurance executive. During Congressional hearings in June 2009 he reminded us all that health insurance executives had assured Congress in 1993 they would work to secure universal medical coverage and end denials of coverage to people with pre-existing conditions. Then they moved heaven and earth to kill reform. They've made the same promises now, Potter observed. But they're in an even better position to throttle reform. Mergers and acquisitions have turned the industry into a cartel of huge corporations.

"The industry is bigger, richer and stronger, and it has a much tighter grip on our healthcare system," he said. "The last thing they want is a government program set up as their competition."

See Potter's interview on Bill Moyers Journal wherein he describes the realities of the health care insurance business.

If Potter's observations aren't enough, read the Los Angeles Times' Michael Hiltzik's recent article What's so great about private health insurance?: The bloody battle in Congress over a 'public option . In it he explains some basic facts.

The firms take billions of dollars out of the U.S. healthcare wallet as profits, while imposing enormous administrative costs on doctors, hospitals, employers and patients. They've introduced complexity into the system at every level. Your doctor has to fight them to get approval for the treatment he or she thinks is best for you. Your hospital has to fight them for approval for every day you're laid up. Then they have to fight them to get their bills paid, and you do too.

People should remember what the health care nightmare in the U.S. really involves. Insurers are part of the problem, not the solution. That observation is nothing but straight forward economics.

Welch, This Oracle Is Just What the Doctor Ordered

Organizations and their leaders can react in different ways during tough times. With many industries experiencing tumultuous and fundamental change compounded by recession, it is more daunting then ever for leaders to understand what the best choices are for the future. From Lencioni’s Five Dysfunctions to Collin’s Good to Great , theories abound regarding the relevant paths to success.

Such uncertainty makes the advice of those who have “been there and done that” quite refreshing. Jack Welch should be the “poster child” for such enlightened and valuable counsel . As with the Oracle character from the Matrix films, he possesses the power of foresight, and his experience serves to advise and guide those attempting to overcome serious challenges. His back to basics philosophy, founded on the four pillars of mission, behaviors, candor and differentiation, is just what the doctor ordered for many leaders in today’s world. Watch Jack during this Managementv interview explain what is truly relevant to organizational success as he outlines his beliefs in the four pillars. An adoption of these rules is a good place to begin when evaluating how to move your organization forward in the best manner possible.