Wednesday, November 12, 2008

How do new ideas get used?

Economic development and growth depend chiefly on innovation -- new products, processes, materials, and modes of organization that can create new opportunities in the marketplace. Business creation and economic growth depend upon innovation. This means creating new products that consumers want or need, improving the performance or safety of the product, or improving the cost and efficiency of the process of production and distribution. So a critical element in economic development is the discovery and development of new ideas -- often technical and scientific ideas. Google, Apple, and Pfizer are examples of industries that created brand new markets for products based on innovations in science and engineering (search technologies, user-friendly computing devices, cholesterol regulating drugs).

Universities are places where highly specialized and talented people are in the business of making discoveries and further developing or refining existing ideas. So we might expect that universities would also be potent sources of economic growth. New ideas surface in engineering, science, or medical research facilities; they are quickly recognized for their potential applications in the marketplace; and entrepreneurs or existing businesses capitalize on them and move them quickly to the marketplace. The basis for this expectation is a familiar one within an Adam Smith sort of framework: new ideas are a potential source of new wealth, and rational maximizers will quickly identify these new wealth opportunities and will quickly and efficiently develop them.

We might expect that this is the case. But surprisingly enough, this picture seems not to be born out in experience. What seems much more true as a description of the process of research and discovery, is that most ideas do not move into the process of commercialization and business development. In fact, it seems like a fairly believable guess that there exist today in the stock of university research discoveries, the makings of dozens of billion-dollar industries and hundreds or thousands of million-dollar industries -- and that these ideas are likely enough to remain dormant for a very long time. Most ideas are not fully developed as business ventures, not because they are not viable, but because the activity of recognizing the market potential of an idea and developing it commercially is itself an extended effort that requires imagination and creativity, and this is not usually either the strength or the priority of the working research scientist.

So what is the obstacle to the full and efficient development of potentially profitable new innovations? Part of the problem is the separation that exists between the research community and the business community. The person who understands the new technology or scientific innovation does not usually understand the commercial potential of the idea, and usually does not have much of a practical idea of what is involved in commercializing an innovation. The research scientist in a university is largely motivated by the rewards of academic progress: publication, the gaining of grants to support future research, and the rewards of prestige that go with academic success. The gap between the technical characteristics of the innovation and the steps that would need to be taken in order to transform this innovation into a business venture is also a very wide one. A research scientist may have developed a technique for coating metals that permits the metal to preserve an electrical charge. But it is not self-evident how this innovation might be developed into new products or processes that have the potential for creating substantial new markets or profits. The researcher who conducts the basic research leading to the innovation usually has little knowledge or interest in the applications that might be possible. And the challenge of bridging the gap between the innovation and some of its potential commercial applications may demand an equally creative and time-consuming period of intellectual and practical work as did the original discovery -- and this is likely to be a form of effort that is foreign to the research scientist.

It might be thought that innovation-oriented investors are among the important mechanisms that help to identify potentially valuable ideas and innovations and move them to successful businesses. "Angel" investors and venture capital firms are certainly filling part of the role of "innovation spotters" in the modern economy. But even this mechanism seems incomplete, in the sense that potentially valuable engineering and scientific research activity generally remains invisible to the investor community until an entrepreneurial researcher brings it forward along with a business plan. So there is a wide information gap between the researcher, the investor, and the business entrepreneur.

These observations suggest two things. First, our economy could be strengthened if we had a substantially more efficient system of identifying innovations as they occur in laboratories throughout the country, and moving these innovations into productive applications. And second, the story seems to suggest that there is a niche available in our economy that would provide profitable opportunities for businesses that are specifically designed to seek out these innovations and innovators and facilitate the transition from idea to product.

Thomas Hughes' detailed history of electric power is a very important illustration of several aspects of this complex story (Networks of Power: Electrification in Western Society, 1880-1930). Hughes demonstrates how long the chain of development is between basic science and useable technology; he also highlights the many contingencies that occur along the way, as electric power generation technology is developed into a mass industry using alternating current. One of the most frequently discussed examples of technology innovation and business development is the story of how the innovations in computer interfaces (the mouse, WYSIWYG editing, Windows-style interface) that were created by Xerox PARC found their way into the multi-billion dollar industry of personal computing. Douglas Smith and Robert Alexander emphasize the business mistakes that many people attribute to Xerox in this story in Fumbling the Future: How Xerox Invented, Then Ignored, the First Personal Computer, while Michael Hiltzik's Dealers of Lightning: Xerox PARC and the Dawn of the Computer Age provides a more favorable version of the story.

1 comment:

Douglass said...

Any value to aristotle's four causes as a way of dealing with complexiites of causes?