Strategy. Innovation. Brand.
Cuddly Capitalism and Innovation
Cuddly, yes. But are they innovative?
Is there a difference between “cuddly capitalism” and “cutthroat capitalism”? If so, which one produces more innovation?
These may sound like completely academic questions that we can safely ignore but I think they set up a debate that’s about to become heated. Specifically, does America need to maintain cutthroat capitalism to save the world economy through innovation?
The debate began when three economics professors (from MIT, Harvard, and Paris School of Economics) published an article arguing that America’s cutthroat capitalism makes us a more innovative country. Further, our innovation is needed to lead the global economy. If we weren’t so innovative, the rest of the world would stagnate.
The article contrasts cutthroat capitalism to the “cuddly capitalism” found in the Nordic region. As the authors note, “Nordic societies have much stronger safety nets, more elaborate welfare states, and more egalitarian income distributions than the US.” The price – according to the authors – is a decline in innovation. The US is “widely viewed as a more innovative economy”.
Further, the cuddly capitalism of the Nordic region is essentially subsidized by the cutthroat capitalism of America. If it weren’t for American innovation, the Nordic regions wouldn’t have dynamic economies capable of supporting welfare states. If America tried to move toward cuddly capitalism, we would simply stall the world economy. Therefore, America needs to maintain and further develop cutthroat capitalism to save the world.
It’s an interesting argument and a fascinating article but is it true or is it just academic hot air? Essentially, the authors assert that the independent variable is the type of capitalism – cuddly or cutthroat. The dependent variable is the degree of innovation.
The article does a pretty good job of defining cuddly versus cutthroat capitalism. On the other hand, it never operationalizes the dependent variable, innovation. It merely asserts that the US is “widely viewed” as more innovative.
Is it true that America is more innovative than Nordic countries? I’m not so sure. Back in February, I wrote a post on geography and innovation based on Brookings Institute data. Brookings defines innovation more rigorously; it’s related to the number of patents filed. In terms of patents per capita, the league table reads (in order): Sweden, Finland, Switzerland, Israel, the Netherlands, Denmark, Germany, Japan, USA. America, the cutthroat capitalist, is in ninth place and well behind such cuddly capitalists as Sweden, Finland, and Denmark.
Of course, the number of patents is not the only indicator of innovation. Indeed, one of the slippery issues of innovation is that it’s very hard to operationalize. But using patents per capita as a proxy for innovation seems far better than assuming that America is more innovative simply because it is widely viewed to be more innovative. The authors present an interesting argument but they need a better definition of the dependent variable if they want to be taken seriously.
Self-Aware Marketing Engines
Suellen recently bought a pair of eyeglasses from Warby Parker, the online retailer. To get an idea of how they would look, she uploaded a picture of herself and tried the glasses on virtually. She “tried on” several models, picked the most flattering one, ordered it, and received it within a couple of days.
Suellen’s glasses are stylish but dumb. They don’t know what they are, where they came from, or how they got to Suellen. Within five years, I suspect that products from Warby Parker (and similar purveyors) will not only be stylish but also self-aware. In fact, let’s call them Self-Aware Marketing Engines or SAMEs.
A Self-Aware Marketing Engine knows what it is and how to sell. An embedded chip carries its identity. A SAME knows:
- What it is – the chip carries information on model number, date of manufacture, serial number, etc.
- Who owns it – Suellen’s Warby Parkers will know her name and contact details and perhaps other things such as her Facebook address, Klout score, birthday, maybe even her husband’s name and contact details.
- How to buy – the chip carries information on how to order similar products.
- How to talk to other devices – probably using Near Field Communications (NFC).
Essentially, SAMEs automate the word-of-mouth process. Let’s say that Suellen’s girlfriend, Laurie, sees the glasses and admires them. Laurie taps her NFC-enabled smart phone on the glasses and learns how she can buy similar glasses and what they cost. She also learns she can upload a photo of herself to see how the glasses look on her.
Laurie uploads a picture to the Warby Parker website and “tries on” various models. The website can tell that Laurie’s visit resulted from Suellen’s influence. It sends Suellen a thank-you note and perhaps a small discount on her next purchase.
Laurie finds three models that she really likes but can’t decide which one to buy. Warby Parker’s website asks how it can help. Laurie explains her dilemma. The website has a solution. With Laurie’s permission, the website loads images of her wearing each of the three different styles to Laurie’s Facebook page. It also sends a “Which style do you like best?” query to all of Laurie’s Facebook friends. It also links to Suellen’s Facebook page so she can follow (and influence) the process.
Laurie waits a day and counts the votes, but then gets distracted by a visit from her friend, Mary Kay. The Warby Parker website notes that nothing has happened for a few days and sends Laurie an e-mail with a small incentive to order soon.
With Mary Kay’s help, Laurie decides to order the Hippie @ Sixty frames (Model 6060/CBGB). Warby Parker’s factory encodes Laurie’s information in the frames – creating another Self-Aware Marketing Engine – and sends them to her. With Laurie’s permission, it also posts the “winning” selection to Laurie’s Facebook page. It also notes that Suellen has influenced the sale and sends her another thank-you note and a larger discount on her next purchase.
Laurie perceives that she has bought some stylish frames. Warby Parker perceives that they’ve sold a Self-Aware Marketing Engine that will generate more sales in the future. For Laurie, it’s a solution to her eye care needs. For Warby Parker, it’s the gift that goes on giving.
Could it happen? Devices are getting smarter all the time. Many devices today are already aware of their own location and orientation (which way they’re pointed). Why not incorporate additional self-awareness that enables products to sell more products? It will happen soon. The only question is who will get there first.
(By the way, though I took a different angle, much of the inspiration for this post came from an article in the April issue of the McKinsey Quarterly: “The Coming Era of ‘On-Demand’ Marketing“)
Gray Hair and Innovation
I’m just peaking.
How old are people when they’re at their innovative peak? I worked in the computing industry and we generally agreed that the most innovative contributors were under 30. Indeed, sometimes, they were quite a bit under 30.
Some of this is simply not knowing what can’t be done. I’ve seen this with Elliot. He doesn’t know how a computer is “supposed” to work. So he just tries things … and very often they work. On the other hand, I do know how a computer is supposed to work and I sometimes don’t try things because I “know” they won’t work. Elliot just doesn’t have the same limits on his thinking. That can be a great advantage in a new field.
While youth may be an advantage in software, it’s not true in many other fields. In pharmaceuticals, for instance, the most innovative people are in their 50s or even 60s. It takes that long to master the knowledge of biology, chemistry, and statistics needed to make original contributions. Comparatively speaking, it’s easy to master software.
Indeed, as knowledge gets more complicated, it takes longer to master. According to Benjamin F. Jones of the Kellogg School of Business, “The mean age at great achievement for both Nobel Prize winners and great technological inventors rose by about 6 years over the course of the 20th Century.” The average Nobel prize winner now conducts his or her breakthrough research around the age of 38 – though the prize is typically awarded many years later.
Aside from domain knowledge, why might you want a little gray hair to fuel innovation in your company? According to a recent article by Tom Agan in the New York Times, one reason is the time necessary to commercialize an innovation. As a general rule, the more fundamental an innovation, the longer it takes to commercialize. Ideas need to percolate. People need to be educated. Back-of-the-envelope sketches need to be prototyped. Lab results need to be scaled up. It takes time – perhaps as much as 20 to 30 years.
Who’s best at converting the idea to reality? Typically, it’s the person or persons who created the innovation in the first place. So, let’s say someone makes a breakthrough at the Nobel-average age of 38. You may need to keep them around until age 58 to proselytize, educate, socialize, realize, and monetize the idea. In the meantime, it’s likely that they will also enhance the idea and, just possibly, kick off a new round of innovation.
So, what to do? Once again, diversity pays. Mixing employees of multiple age groups can help stimulate new ways of thinking and better ways of communicating. Ultimately, I like Meredith Fineman’s advice: “Working hard, disruption, and the entrepreneurial spirit knows no age. To judge based upon it would be juvenile.”
Pour Me a House. Print Me a Cookie.
Print this!
When Elliot was in architecture school, he designed a chair in 3D software. Then he printed it. Then he sat in it. It held up pretty well.
As a designer, Elliot was an early adopter of 3D printing, also known as additive manufacturing. Elliot designs an object in 3D virtual space within a computer. (He’s an expert at this). The object exists as a set of mathematics, describing lines, arcs, curves, shapes, and so on.
Elliot then exports the mathematical description of the object to a 3D printer. The printer converts the math into hundreds of very thin layers – essentially 2D slices. The printer head zips back and forth, laying down a slice with each pass to build the product physically. It’s called “additive manufacturing” because the printer adds a new layer with each pass.
The earliest such printers might have been called “subtractive manufacturing.” You started with a big block of wax in the “printer”. You then loaded the mathematical description and the printer carved away the unnecessary wax using very precise cutting blades. The result was the object modeled in wax. You used the model to build a mold for manufacturing.
Elliot used a printer equipped with a laser and some very special powder. Based on the mathematical description of the slices, the laser moved back and forth, firing at appropriate points to build each layer. On each pass, the laser converted the powder into a very strong, very hard resin that adhered to the previous layer. At the end, Elliot had the finished product, not just a mold.
Elliot’s chair looked and felt like it was made of plastic. Several companies are now experimenting with metal oxides that use a similar process to print metal objects. A British company, Metalysys, is working with a titanium oxide that should allow you to print titanium objects. One benefit: it should dramatically reduce the cost of titanium parts and products.
Newer 3D printers can use a nozzle to extrude material onto each slice. What can you extrude? Well, cement, for instance. Construction companies in Europe are already using robotic arms and cement extruders to build complex walls and structures. It won’t be long before Elliot can design an entire house in virtual space and then have it poured on site. Elliot will be able to create much more imaginative designs (like the one above) and print them at a lower cost than traditional building techniques. What a great time to be an architect!
Not interested in cement? How about extruding some cookie dough instead? In fact, let’s imagine that you have some special dietary needs and restrictions. You submit your dietary data to the printer, which selects a mix of ingredients that meets your needs, and prints you a cookie. You can select ingredients based on your tastes as well as your dietary needs. What a great time to be a chef!
What’s next? GE recently announced that it would use additive manufacturing to create jet engine parts. Before long, we may be able to print new body parts. (I’m waiting for a new brain). And, 3D printing is coming to your home. Click here to find out how you can make anything. What a great time to be a nerd!
Sustainability and Innovation
Nice axe!
When I lived in Ecuador, I climbed many of the highest peaks in the Andes. I carried an ice axe with a carbon steel blade and a shaft made of laminated bamboo. Why bamboo? Because it was very light and very, very strong. Little did I know, I was also using one of the most sustainable products in the world.
Who uses bamboo today? Dell Computer now creates packaging out of bamboo fibers rather than cardboard. Why? Partially because it’s very light and very strong. But mainly because it’s one of the fastest growing, least resource intensive fibers in the world. As with my ice axe, it’s highly sustainable.
Dell’s packaging is a small example of a wave of innovation that’s sweeping the manufacturing world. Companies realize that sustainability is increasingly important to their own survivability. It can also be an important competitive advantage within significant customer segments. Innovating for sustainability can deliver three significant benefits. First, it can reduce costs. Second, it can lead a company into new market segments. Third, those market segments are often willing to pay a premium for sustainable goods, which can mean higher margins.
According to a joint MIT and Boston Consulting Group study, interest in sustainability is growing partially because profits are growing. MIT/BCG have published the study yearly since 2010, when they first identified Sustainability Embracers “who firmly believe that sustainability is necessary to be competitive.” In 2010, 23% of the Embracers were already reporting profits from their sustainability innovations. By 2012, that number had risen to 37%.
To reduce costs, companies are increasingly asking their suppliers to reduce waste and energy use and simplify packaging. Customers — especially in Europe — are demanding sustainability “credentials”. Employees are also pressuring their employers to innovate for sustainability. Ultimately, sustainability may become a differentiator in efforts to recruit top talent.
Companies are also selling sustainability. According to the study, SAP, the huge business-to-business software company now states that its purpose is sustainability. Peter Graf, SAP’s chief sustainability officer, says, “That is why we have started to … help clients optimize their energy requirements and natural resource use across their supply chains.” Helping customers implement Green Manufacturing has to be one of the biggest B2B software opportunities over the next decade.
Dell’s example is one of resource innovation — swapping a less sustainable component (cardboard) for a more sustainable one (bamboo). Many companies are also innovating their business models to achieve greater sustainability and greater benefits from sustainability. The innovations tend to come either in value chain improvements or in market segmentation. Companies that “pull these two levers” are more likely to see profits from their sustainability efforts.
There are still obstacles of course. Companies cite various hurdles: it’s difficult to quantify the benefits, sustainability conflicts with other priorities, it increases administrative costs, and, in some cases, it may increase overall production costs. Still, a growing segment of companies is investing in sustainability. Perhaps the best predictor of success is whether a company has written a formal business case for sustainability. Those that have tend to be the innovation leaders. They are also more likely to report that their sustainability investments are generating profits.
Interestingly, North American companies are not leading this innovation wave. Though Europe is ahead of America, the real leaders are companies in developing countries, especially in Africa. The MIT/BCG study suggest that this may well be “because these regions face significant resource scarcity and population growth challenges.” This may also be an example of “reverse innovation” where innovations in poorer countries are adapted by richer countries rather than vice-versa.
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