Around the Corner

You may have noticed my last few posts were about institutions, management and leadership. I'll continue to write more about these important aspects of innovation, but I want to take the opportunity in this post to recognize the power of participation.

Today, the pervasiveness of technology makes it possible for almost every citizen to actively participate in government. Both dramatic reductions in technology costs and new technologies that have recently become available allow individuals from diverse backgrounds to voice their opinions and engage in public dialogue. As President Obama points out in his Transparency and Open Government Directive, participation and public engagement improve the quality of government decisions. Participation improves government decisions because knowledge is widely dispersed throughout society and today's technologies make more of that information available to government executives. The National Dialogue, sponsored by the National Academy of Public Administration on behalf of the Recovery and Accountability Transparency Board, serves as a good example of the kind of public dialogue that can take place today.

That dialogue has concluded, but now you can participate in shaping President Obama's Transparency and Open Government directive. The Office of Science and Technology Policy yesterday placed this notice in the Federal Register that members of the public are invited to participate in the process of developing recommendations that will inform the Transparency and Open Government Directive. Visit the Open Government Brainstorm to submit your ideas on the best ways to "strengthen our democracy and promote efficiency and effectiveness by making government more transparent, participatory, and collaborative." You can also vote on ideas others have submitted, and the most popular ideas will rise to the top of the queue for possible implementation. When I visited the Brainstorm earlier today, there were already 166 ideas submitted and 4702 votes cast.

Equally important is participation in our broader civil society. Civil society is typically understood as the uncoerced collective actions of people around their shared interests, purposes and values that create public goods exclusive of traditional market mechanisms. Wikipedia is a great example of a social good produced by civil society. Those of us familiar with the open source software community would also recognize the Apache Web Server, the most widely used web server on the Internet, as another great example of a public good produced by civil society.

Yochai Benkler recognizes the significance of participation in civil society in his Wealth of Networks. Benkler introduces the term social production to describe the output of a civil society. He then goes on to examine how individuals and organizations participate in the production of public goods, then describes the economics of social production.

Today, whether through participation in government, or participation in civil society, participation is power. And technology places the power with you.

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I recently mentioned Gary Hamel's vital work on Moonshots for Management. Moonshots is part of a larger initiative at the Management Lab on Management Innovation. Hamel defines Management Innovation as an organization's ability to effect fundamental changes in its way of working. Recall Hamel's premise that many of today's management principles remain grounded in the industrial era where a large portion of work was physical labor. Today, a much larger percentage of our work is based in knowledge and creativity, resulting in a need to change organizational management processes and adopt more innovative approaches.

Hamel recently published his list of essential reading in Labnotes. I'll share some thoughts on my favorites from the list over the next few posts. Whether you get a chance to read the books, or just have a comment, let me know what you think.

It's no surprise that Follett's Creative Experience is at the top of Hamel's reading list. Today, where national competitiveness and productivity are measured in terms of knowledge and innovation, Follett's analysis of integration, power and experience provide key insights into a highly productive, post industrial workforce.

Follett defines integration as the ability to successfully introduce new information that resolves an an apparent contradiction without inducement, compromise or domination. Successful leaders use integration to reveal common interests among diverse groups or individuals.

Follett contrasts power-with and power-over. Power-over disregards will, purpose and motivation. It can introduce resentment. Power-with naturally follows from the process of integration. It preserves will and purpose. It is sustainable and its origin is in experience. Follett says: "These three are bound together: the unifying, controlling, the sustaining are one. Whenever we are talking of actual power, then, we are talking of something which is generated by circular response [...] It often has tragic consequences when our control attempts to run ahead of our integration."

Follett describes experience as a self sustaining and self renewing process of creativity. Creative experience implies that organizations increase capacity by evoking unity of purpose from richly diverse individuals who respect differences while retaining their identity.

Creative Experience contrasts sharply with Frederick Winslow Taylor's Principles of Scientific Managment. If you're a student of management practice, you'll appreciate that both of these influential texts are available on line. Take a few minutes and compare Chapter 2 of the Principles of Scientific Management with Follett's Creative Experience. And be thankful that today we have a wide variety of opportunities to bring innovation to the workplace, unlike the industrial workers of decades ago who were incentived simply to perform the same task over and over without end.

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In recent posts I mentioned two benchmarks of national innovation and competitiveness: the World Bank's Knowledge Economy Index (KEI) and the World Economic Forum's Network Readiness Index (NRI). Each of these benchmarks serve as useful indicators of national competitiveness. But, how do we interpret these benchmarks? There's no doubt that the rank a country receives gets a lot of attention, but interpreting benchmarks means much more than rank. In this post I'll examine some of the assumptions underlying another important benchmark, the World Economic Forum's Global Competitiveness Report (GCR).

The GCR, produced since 1979, ranks national competitiveness according to the Global Competitiveness Index (GCI). The GCI defines competitiveness qualitatively as "the set of institutions, policies and factors that determine the level of productivity of a country." Like the NRI and KEI, the GCI ranks nations quantitatively according to a weighted index of pillars. GCR defines twelve pillars: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation. And if that's not enough each pillar is comprised of a set of indicators!

To better assess national competitiveness I'll first examine how the pillars fit into the GCI index, then look closer at how a few key pillars and their indicators cause certain countries to rank as the most competitive. The GCI partitions each of the twelve pillars according to three stages of a nation's economic growth: stage one growth is factor-driven, stage two is efficiency-driven and stage three is innovation-driven.

Factor-driven economies are typical in countries that compete on the basis of unskilled labor and natural resources. Chad, the lowest ranking country in the GCI, with its estimated one billion barrels of oil reserves is a good example of a factor-driven economy. The pillars associated with factor-driven economies are: institutions, infrastructure, macroeconomic stability, health and primary education.

Efficiency-driven economies are typical in countries that compete on the basis of production processes and increased product quality. Countries in this stage of development typically have well established higher education and training, efficient goods and labor markets, sophisticated financial markets, a large domestic or foreign market and the capacity to harness existing technologies, or technological readiness. Unlike the NRI, the GCI differentiates technological readiness, a stage two pillar, from technological advancement as embodied in stage three, innovation-driven growth. Brazil with a per capita GDP of about $7,000 is a good example of an efficiency-driven economy.

Innovation-driven economies are typical in countries that compete on business sophistication and innovation. The U.S. with about $46k per capita GDP ranks first overall in the GCI with the largest domestic market size and the second largest foreign market size (pillar 10). The U.S. also ranks fourth in business sophistication (pillar 11) and first in innovation (pillar 12). To really understand how the U.S. ranks so highly in GCI, we need to look more closely at the indicators that comprise business sophistication and innovation.

Business sophistication is comprised of nine indicators. I'll comment on two – value chains and clusters - because they say so much about how to interpret the GCI as a benchmark. Value chains were first introduced by Professor Michael Porter, Bishop William Lawrence University Professor, Harvard Business School, in his 1985 best selling book Competitive Advantage: Creating and Sustaining Superior Performance. A value chain is a set of activities in which value accrues to a firm at each stage of producing its outputs. Porter's value chains are well known, so I won't spend more time on them here other than recognizing their close relation to five of the other Business Sophistication indicators: local supplier quantity and quality, control of international distribution, production process sophistication and the extent of marketing. Business Sophistication also depends on Porter's more recent work on clusters. Clusters are geographic concentrations of firms, their interconnected suppliers and supporting institutions in a particular field that are known to increase productivity. There's strong evidence that a high ranking in business sophistication implies geographic proximity, specialization, dependency and complex relationships among firms in a cluster.

Innovation is comprised of seven indicators of a nation's science and technology maturity. Indicators include legal (number of patents and intellectual property protection), investment in research and development (private and public sector), knowledge related activities (quality of scientific research institutions, availability of scientists and engineers, and university-industry collaboration). Recall that the KEI measures the number of scientific articles published, which serves only as a proxy to GCI's knowledge related indicators.

So what do we make of all this? It's a lot of detail, but the detail tells us how the GCI determines a nation's rank and why the U.S. ranks so highly. The GCI benchmarks technology readiness differently than the NRI by better separating technology adoption from new technology creation. It also better separates primary and secondary education as well as research and development according to the stages of a nation's economic growth than the KEI. To rank highly in national competitiveness, nations must rank highly in both business sophistication and innovation. Porter's value chains and clusters influence a nation's rank as well as a nation's science and technology policy.

Where will the U.S. rank in 2010? Last week in his speech on the Necessity of Science, President Obama stressed the importance of science and technology policy and set a national goal to devote more than 3 percent of our GDP to research and development. This bodes well for innovation. But the global financial crisis will surely affect soundness of banks and regulation of securities and exchanges (pillar 8) as should the troubles of the Detroit automotive cluster.

Stay tuned!

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