Innovation Depression Strikes

I’m getting innovation depression. The new list of 25 Most Innovative Companies by BusinessWeek and BCG is out and spending on innovation is down. Despite all the evidence showing that companies that invest in innovation in economic downturns gain competitive advantage in economic recoveries, most corporations are cutting back on R&D and other innovation investments for short-term cost-cutting gains. It’s sad.

Even sadder is the same list of companies year-in-and-year-out on the list. Apple, Google, Toyota, Microsoft, Nintendo at the top, IBM (up to #6 from #12 in 2008), HP (up to #7 from #15 last year), RIM, Nokia, Wal-Mart, Amazon, P&G, etc. Tata, Sony, Vodafone, Honda, Samsung, VW, Reliance Industries are in the Top 25.

Any new names you haven’t heard of? There are thousands of public companies in the US, Europe and Asia—where are they are on this list? There few new-comers.

Mike Mandel, chief economist of Business Week, gave an insightful speech on the failure of innovation at my Design-At-The-Edge class at Parsons School of Design last week.

Mike showed that aside from financial innovation, most industries have not innovated very much over the past decade. We are blinded by the success stories of the same dozen or two dozen companies and forget about the failures of the thousands of others. Whole promising markets, such as genomic medicine have proven terribly disappointing. Alternative energy also disappointing. Nuclear energy, disappointing, according to Mike.

This failure of innovation in the US has undermined long-term economic growth and led to the current financial and economic crisis. The wealth of the past decade has been faux--borrowed. Except for the wealth generated in the financial sector, which doubled in size as a percentage of GDP, there really hasn't been much at all.

Wow. We need to think about this. If Mike is right, if there has been very little aggregate innovation over the past decade, then--WHY? Have the obvious innovations in social media, iPhone platform, etc., not spread throughout the economy and remained narrowly limited in age cohorts? Is innovation diffusion too slow because designers focus on their own friends and not others? Is innovation too hard for most companies--or are CEOs and managers just too untrained and inflexible to change their conventional behaviors--and the cultures of their organizations?

Which is it?

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