During this year’s TIME Davos panel “Leading through Adversity” — video highlights of which you can watch below — TIME International editor Jim Frederick asked some of the world’s biggest players in the global economy a simple question: Are leaders too risk-averse in their efforts to bring the economy back on track?
It’s not an unfamiliar query for the likes of Walmart CEO Mike Duke, Cisco CEO John Chambers, and Martin Senn, CEO of Zurich Insurance Group. Indeed, political gridlock has been gripping economies from the U.S. to Germany to Japan, making uncertainty a defining theme of this year’s Davos chatter. As Eurasia Group’s Ian Bremmer said at a recent Thomson Reuters event in New York: For “emerging markets in general, the level of political instability is underpriced for 2013.”
Aside from political risks abroad, corporate executives have taken a lot of heat for using uncertainty about taxes and regulation back home as an excuse to put off investing in jobs and growth. The TIME panel shed some light on the root causes of corporate dithering. Here are some of the themes that emerged:
Innovations that don’t create jobs pay off more quickly
Clayton Christensen, the Harvard economist famed for his research on disruptive innovation, said there are three types of innovation: 1) empowering innovations, which transform products that were historically complicated and accessible only to the rich; 2) sustaining innovations that make products better but don’t create new jobs (take for instance, Toyota’s invention of the Prius); and 3) efficiency innovations that reduce jobs in the economy.
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Christensen explained that, even in an era of cheap cash, companies are still leaning on efficiency innovations because they pay off in the short-term (2 to 3 years) whereas empowering innovations take 5 to 10 years to pay off. Meanwhile, companies have felt pressured to follow the efficiency innovations coming out of Asia, according to panelist Anand Mahindra, CEO of India’s Mahindra and Mahindra. In India, “innovation is about a philosophy of doing more with less,” he said. “The world is getting confused by going into these new markets. Even Apple is facing the rise of Samsung and other companies that are doing more for less.”
Empowering innovations aren’t dead. Look to e-commerce
When TIME’s Frederick asked whether firms aren’t innovating because society has hit a kind of innovation wall, Cisco’s Chambers and Walmart’s Duke pointed to the fruits of e-commerce. “I don’t visit a store anywhere in the world without seeing consumers using technology on the floor to communicate and empower,” said Duke.
Chambers, who called himself an “optimist” about the future of innovation, added that the lifecycle of companies is shortening, making it harder for companies to follow through on longer-term innovation. “The average Fortune 500 company can only stay [in that group] for 15 years instead of 50, and that’s on its way to being 5 to 7 years.” Still, Chambers said he’s optimistic about the next wave in Internet technology: “We think you can create an industry worth $14 trillion and change [Walmart's] supply chain and operational efficiency, how you interface with customers and a whole new capability of how we use the Internet.”
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Innovation is shifting from technology to manufacturing
Christensen tempered that optimism. One innovation wall, he suggested, is too much money flowing into consumer tech. The result, he explained, is that “we can’t actually use all the technology that’s available to us and that creates a model of disruption.” The focus on proprietary tech innovation by big players like Apple, he said, made “manufacturing these products just a sideline. It’s easy to outsource the manufacturing to China where costs are lower.” But when tech innovations open up and become modular—as with Google’s Android operating system, for example—proprietary innovations like Apple’s become commoditized. And then the proprietary innovations shift to manufacturing capability. Manufacturing innovations are worthwhile pursuits that create jobs, said Christensen. The worry, he concluded ominously, is that “we might not be able to do that [kind of innovating] in America anymore.”
Innovation isn’t just about ideas — it needs to make money
Panelist Orit Gadiesh, chairman of Bain & Company, noted that innovation can’t be pie in the sky; it has to fit within a company’s core strategy. “Just because you created an idea doesn’t mean it can become an innovation,” she said, adding that innovations have to be “commercially viable.”
That, added Christensen, is why the idea of sustainable innovation is tenuous at best. He told me after the panel that following through on innovation is harder now that companies are less integrated and own fewer parts of the production process. In the days of the Model T, Henry Ford had to do more than make the car. He had to make the wheels, the steel and all the parts. Today the trend in business is specializing, not integrating, and companies measure profitability by looking at their return on net assets, a metric that favors moving assets off the balance sheet and outsourcing, not innovating.