Two years ago, Elliott Ichimura, a colleague of mine, pulled together ideas from eight different sources to produce the Virtuous Cycle of Innovation shown above. The eight sources he used are:
At the time, the elegant inner cycle of entrepreneurship -> innovative ideas -> value creation -> cash flows -> incentives, primed by high leves of R&D investment, was still fueling many sectors of the economy. What stopped the cycle, and why? I believe four structural, systemic and cultural factors, which were temporarily overcome during the exuberant 1990s, turned the virtuous circle back into a vicious cycle and led to the abandonment of innovation as a driver of the economy:
Will we see another virtuous cycle of innovation in the future? Undoubtedly. Even the most conservative businesses realize that a lack of innovation stifles the economy and leads to stagnation. Our change aversion is balanced against our entrepreneurial spirit. We like new ideas and trying out new things — that is how we learn and grow. Eventually the pendulum will shift back, driven by a new set of basic human needs, and the virtuous cycle will shift back into gear. |
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Dave, You have a bad URL on this post’s image. It’s pointing to your C: drive – file:///C:/Program%20Files/Radio%20UserLand/www/images/Innovation.gif
This virtuous cycle of innovation sounds very deja vu-ish — back in the early 80’s, I was involved with a group at the bank of montreal who were interested in “business cycles” and with outside-MIS computers becoming available, we looked at several models of business cycles for various kinds of domestic investments.For a theory to be useful, it has to be predictive. It’s always safe to say the rains will return, but this year? next year? in 2038?? The business cycle people started doing pretty much what agricultural-based astrologers had done some 6000 years before, they started charting the ups and downs and looking for waveforms. One of the most striking and incontrovertable being the Saros Cycle, the 11 year sunspot cycle that affects agriculture and radio communications and in turn pummel the economics of earth with cosmic rays.So that prompts me to ask: Have you charted the virtuous cycles? Data should exist well back into the 18th century, and I’d be curious to know if there is a rhythm that we can use.FWIW, one of the most successful of the trading cycle theories was based on “relativistic” cycles where the length of the cycles would contract as the volumes traded increased, with the cycle varying from 12 to 15 days … which was just too much co-incidence for me: We lined up 20 years of daily data against phases of the moon, and while both did remarkably better than chance, you’ll never guess which method was the more accurate :)
Teledyne huh? Thought I recognized the accent. Eh?
Mike: Oops & Damn – embarrassing mistake. Thanks for pointing it out. Should show up properly now.
Gary: I agree that ideally a model needs to be predictive, but even if it isn’t demonstrably so, I find systems thinking maps like this (I’ve fixed the link so you should now be able to see it) help you think about cause-and-effect relationships, and allow you to understand how things tend to self-perpetuate and reinforce each other, and how disruptions to cycles occur. I do think we’ve seen a serious slide in innovation in a whole group of industries, including some facets of the entertainment ‘industry’, and this model does as good a job of explaining why that happened as any I’ve seen. And Elliott’s used it to good advantage in his area of our business, which is really the only business unit in our company that’s still doing a lot of innovative work.
A correction to the diagram: As Risk increases, so too does the Failure Rate. The sign between should be positive to show a direct correlation.
I think the Virtuous Cycle of Innovation is an overanalyzation of existing phenomena and is too unnecessarily complex to be a useful tool to anyone as a prescriptive element in how to foster innovation or as a way of understanding how innovations occur.
The world is a complex place, and large businesses are complex ecosystems where metrics and measures heavily influence employee behavior. In the effort to foster innovation, it’s great if you can boil complexity down to a simple tagline that movitates employees to invent and share those inventions with their companies. But, converting invention into exploitable innovation requires a level of investment in organizational processes and incentives. “Gaming the system” isn’t as much of a problem in a small organization where intentions are transparent and incentives link fairly directly to individual effort and impact. The same is not true of large organizations. To manage innovation in large organizations, you need insight into the underlying complexities that determine whether or not inventions can and will be turned into innovations that produce revenue and profit. Managerial action without insight into cause and effect and active monitoring of leading indicators will gradually dampen employee interest in invention/innovation, or drive employees to strike out on their own rather than share risk and reward with a broader organization.