by Peter Merrill

We are currently in a perfect storm for global change, and there are many factors at play. The global marketplace is changing as China and India and the tiger economies of Singapore, Taiwan and South Korea exert increasing influence. Advances with technology—digitization, in particular—are dramatically changing the way we complete even the simplest tasks in our everyday lives.

Technology, in turn, is helping people to live longer, contributing to the third factor: the aging population. The fourth factor of change is the negative effect of technology, as we poison our bodies and our planet with toxins. This factor is often simplified with the term "global warming," but it is probably the most dangerous and least understood in terms of its complexity.

In previous columns, I have quoted Charles Darwin, who said: "It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change."1 Today, we are responding to this change by innovating.

Pillars of development

The World Economic Forum (WEF) Global Competitiveness Report 2012-20132provides us with some interesting insights into how all of this change is affecting nations globally. It describes 12 stages or pillars of economic development used as the basis of its global competitiveness index (GCI). Global competitiveness starts with a country’s need for institutions and infrastructure, and moves through education and training to financial market development. At the 10th stage, the GCI shows how market size and economies of scale become critical factors in economic performance. The 11th stage of development is business sophistication, and the 12th and final stage is innovation.

Looking at the 10th pillar—market size—you might ask whether the advance of additive manufacturing, often called 3D printing, which destroys economies of scale, will be yet another change factor in the global market.

The 11th pillar the WEF report describes is business sophistication, which refers to process and system efficiency. This is familiar territory for the quality practitioner. It is about efficiency of processes inside an organization and among organizations as they trade with one another. Efficiency inside companies has come from the development of quality management systems during the last 25 years together with advanced operations and practices.

We see efficiency at a national level in the form of business clusters, such as in the Silicon Valley or going back in history to the textile network of Northwest England. There is a limit to the gains in competitiveness that come from process efficiency, and the danger for the quality professional is that their thinking does not move beyond process efficiency.

The 12th pillar described by the WEF report is innovation, which includes a focus on technology. Innovation can occur in our processes and quite frequently at a system level in our business models, but innovation in technology is more difficult to copy, especially when it is protected by patents. An essential but subtle factor in all of this innovation is the ability to produce the new offering. That is what frequently separates us from the competition. In-house competencies are more difficult to copy.

Disruptive innovation is evident throughout history with the invention of the steam engine in the 18th century, the use of electricity in the 19th century and the digital revolution at the end of the 20th century. These innovations not only changed the way things got done but also opened the door to more change and more opportunity for innovation. This is that perfect storm we find ourselves in as we progress through the 21st century.

The WEF report points to innovation being vital as organizations approach the boundaries of knowledge. Organizations must develop cutting-edge products and processes to be competitive. This means creating an environment and encouraging behaviors that lead to innovation through investment in organizational R&D along with national research institutions that collaborate with industry. Behind this is the financing of innovation, which is essential at an organizational and national level.

Major players

The WEF analysis also looks at how this change has affected major global players. The report’s top innovators include: Japan, Germany, Switzerland, Sweden, Finland, the Netherlands, the United States and the United Kingdom.See Online Table 1 to view a matrix that merges data from the 2012-2013 WEF report to generate a final country ranking for innovation. Online Table 2 presents this information for 2010-2011.3

Japan’s success as a leading innovator is tied to organizational investment in R&D. There is a strong work ethic in the country, and the society is well networked. Scientists and engineers are widely available and move quickly into industry. There are high patents per capita. But the country is held back by economic weaknesses—it has the second highest budget deficit globally.

Meanwhile, Germany is catching up to Japan and is renowned for its engineering, R&D spending and strong research institutes. Germans are also known for their strong work ethic. There is intense local competition with low-market dominance by large organizations.

Europe’s success, in addition to Germany, comes from countries such as Switzerland, Finland, Sweden and the Netherlands. Nearly all have populations less than 10 million and in all of these countries, key local organizations share ideas. In Finland, for example, businesses partner with universities, and with a population of just 5 million people, nearly everyone in business speaks English. This enables them to be a global player. Finnish organizations such as Nokia have been a national success.

The United States’ decline began a decade ago, and between 2011 and 2013, it fell from fourth to seventh in the innovation matrix. The decline is masked by the structural features that make the economy productive. The United States scores high in the caliber of its research institutes, but that is being overtaken by the United Kingdom. It also scores high on institute collaboration with industry, but this, too, has declined. A third factor that has historically driven innovation in the United States is government procurement influence, which also has dropped in the last decade. In a separate analysis, the Boston Consulting Group4 has shown that innovation in the United States is strongest in specific regions—the New England states, the Pacific Northwest and California. This raises the importance of good networking for successful innovation.

The United Kingdom has moved up from 12th in 2011 to ninth place. It scores alongside the United States in its academic institutions, but organizational R&D spending is low. There appears to be good collaboration between business and universities. Higher education is becoming more available as the elitism in the educational system is decreasing. Importantly, the availability of engineers and the patent rate have moved up significantly.

It is also worth noting Canada’s drop from 14th to 21st on the innovation matrix. Its research institutions and their collaboration with industry have deteriorated and organizational R&D spending is terrible. The government’s role in promoting innovation through procurement has declined, and there has been a drop in higher education and in workplace training. There is also a lack of strategy to develop Canada’s many small to medium-size enterprises. Canada is good at developing new ideas, but new ideas tend to go south. It’s worth questioning whether the geographic proximity of the United States’ innovation clusters plays a role in the country’s inability to bring new ideas to market.

It is also important to look at the new influence of China and India, which are still in their early days as leading innovators.5

China is below 30 on the innovation matrix, but increasing government influence is developing innovation. Organizational R&D spending is still low, but this is changing as China graduates a huge number of new engineers each year. The business infrastructure is there to absorb this new talent.

India is below 50 with a serious problem. Large numbers of scientists and engineers graduate, but government corruption means they have little influence on innovation. India is renowned for its production of scientists, doctors and software engineers, but those professionals do not yet have a home from which to work in India.

Responding to change

Revisiting Darwin’s quote, we must ask ourselves: How will we respond to global change, and think globally and act locally?

To act locally, it is worth looking at the IBM 2010 Global CEO Study, in which 1,500 CEOs reported threats and opportunities were coming faster and less predictably than at any time in the past.6 Interview subjects said threats and opportunities are intertwining to create increasing complexity, which, in turn, presented the biggest challenges to their organizations. These CEOs identified creativity as the single most important leadership competency to address this challenge of complexity. However, they also saw the need to equip their entire organization to be creative rather than isolate creative people in departments like R&D. Employees at all levels must question "the way we’ve always done things." Creativity is the first step on the road to innovation, and innovation has become vital for an organization to survive given the complexity of global change.

Creativity is the ability to produce new ideas through imagination and unconventional approaches to problems. Creativity occurs in an environment where people have freedom to think and interact with new stimuli. Sadly, the opportunity to create is often removed from most of us as a result of the daily work we do, even though creativity is the vital initiator of the innovation process.

A culture of creativity and innovation is one that releases the tacit and subconscious knowledge embedded inside an organization’s people. New behaviors are needed to release this knowledge including:

Exploration: Step out of the box and gain new learning.
Collaboration: Interact with people who are different from ourselves. The vital spark comes from diversity in our people.
Willingness: Experiment and don’t be afraid to fail to find new solutions.

How can your organization act locally to be successful at innovation as a result of thinking globally?

Continuously educate your people.
Network and collaborate.
Enable all your people to contribute their knowledge.
Develop many ideas.
Have your business case well defined.
Execute—focus and move with speed.
Explore globally—someone somewhere has a need for your offering.

References and notes

Charles Darwin, On the Origin of Species, John Murray, 1859.
World Economic Forum, Global Competitiveness Report 2012-2013, www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf (case sensitive). The 2013-2014 report was released after this column was written.
The country rankings used in this article are based on matrixes the author created by merging data from the World Economic Forum’s reports on global competitiveness. Data for 2013 is found in the Pillar 12 Innovation data tables of the Global Competitiveness Report 2012-2013, see reference 2, pp. 512-518. Data for 2011 is found in the Section XII Innovation data tables of the Global Competitiveness Report 2010-2011, pp. 488-494, www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2010-11.pdf (case sensitive).
Boston Consulting Group, The Innovation Imperative in Manufacturing,March 2009.
Peter Merrill, "All Over the Map," Quality Progress, November 2011, pp. 24-29. More detail about innovation in China and India can be found in this article.
IBM, Capitalizing on Complexity: Insights from the Global Chief Executive Officer Study, http://public.dhe.ibm.com/common/
ssi/ecm/en/gbe03297usen/GBE03297USEN.PDF (case sensitive).