Sell Google – Lot of Heat, Not Much Light

by | May 3, 2012 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership, Web/Tech

With revenues up 39% last quarter, it's far too soon to declare the death of Google.  Even in techville, where things happen quickly, the multi-year string of double-digit higher revenues insures survival – at least for a while. 

However, there are a lot of problems at Google which indicate it is not a good long-term hold for investors.  For traders there is probably money to be made, as this long-term chart indicates:

Google long term chart 5-3.12
Source: Yahoo Finance May 3, 2012

While there has been enormous volatility, Google has yet to return to its 2007 highs and struggles to climb out of the low $600/share price range.  And there's good reason, because Google management has done more to circle the wagons in self-defense than it has done to create new product markets.

What was the last exciting product you can think of from Google?  Something that was truly new, innovative and being developed into a market changer?  Most likely, whatever you named is something that has recently been killed, or receiving precious little management attention.  For a company that prided itself on innovation – even reportedly giving all employees 20% of their time to do whatever they wanted – we see management actions that are decidedly not about promoting innovation into the market, or making sustainable efforts to create new markets:

  • killed Google Powermeter, a project that could have redefined how we buy and use electricity
  • killed Google Wave, a product that offered considerable group productivity improvement
  • killed Google Flu Vaccine Finder offering new insights for health care from data analysis
  • killed Google Related which could have helped all of us search beyond keywords
  • killed Google synch for Blackberry as it focuses on selling Android
  • killed Google Talk mobile app
  • killed the OnePass Google payment platform for publishers
  • killed Google Labs – once its innovation engine
  • and there are rumors it is going to kill Google Finance

All of these had opportunities to redefine markets.  So what did Google do with these redeployed resources:

  • Bought Motorola for $12.5billion, which it hopes to take toe-to-toe with Apple's market leading iPhone, and possibly the iPad.  And in the process has aggravated all the companies who licensed Android and developed products which will now compete with Google's own products.  Like the #1 global handset manufacturer Samsung.  And which offers no clear advantage to the Apple products, but is being offered at a lower price.
  • Google+, which has become an internal obsession – and according to employees consumes far more resources than anyone outside Google knows.  Google+ is a product going toe-to-toe with Facebook, only with no clear advantages. Despite all the investment, Google continues refusing to publish any statistics indicating that Google+ is growing substantially, or producing any profits, in its catch-up competition with Facebook.

In both markets, mobile phones and social media, Google has acted very unlike the Google of 2000 that innovated its way to the top of web revenues, and profits. Instead of developing new markets, Google has chosen to undertaking 2 Goliath battles with enormously successful market leaders, but without any real advantage.

Google has actually proven, since peaking in 2007, that its leadership is remarkably old-fashioned, in the worst kind of way.  Instead of focusing on developing new markets and opportunities, management keeps focusing on defending and extending its traditional search business – and has proven completely inept at developing any new revenue streams.  Google bought both YouTube and Blogger, which have enormous user bases and attract incredible volumes of page views – but has yet to figure out how to monetize either, after several years.

For its new market innovations, rather than setting up teams dedicated to turning its innovations into profitable revenue growth engines Google leadership keeps making binary decisions.  Messrs. Page and Brin either decide the product and market aren't self-developing, and kill the products, or simply ignore the business opportunity and lets it drift.  Much like Microsoft – which has remained focused on Windows and Office while letting its Zune, mobile and other products drift into oblivion – or lose huge amounts of money like Bing and for years XBox.

I personalized that last comment onto the Google founders intentionally.  The biggest news out of Google lately has been a pure financial machination done for purely political reasons.  Announcing a stock dividend that effectively creates a 2-for-1 split, only creating a new class of non-voting "C" stock to make sure the founders never lose voting control.  This was adding belt to suspenders, because the founders already own the Class B stock giving them 66% voting control.  The purpose was purely to make sure nobody every tries to buy, or otherwise take over Google, because the founders will always have enough votes to make such an action impossible.

The founders explained this as necessary so they could retain control and make "big bets."  If "big bets" means dumping billions into also-ran products as late entrants, then they have good reason to fear losing company control.  Making big bets isn't how you win in the information technology industry.  You win by creating new markets, with new solutions, before the competition does it. 

Apple's huge wins in iPod, iTouch, iTunes, iPhone and iPad weren't "big bets."  The Apple R&D budget is 1/8 Microsoft's.  It's not big bets that win, its developing innovation, putting it into the market, shepharding it through a series of learning cycles to make it better and better and meeting previously unmet – often unidentified – needs.  And that's not what the enormous investments in mobile handsets and Google+ are about.

Although this stock split has no real impact on Google today, it is a signal.  A signal of a leadership team more obsessed with their own control than doing good for investors.  It is clearly a diversion from creating new products, and opening new markets.  But it was the centerpiece of communication at the last earnings call.  And that is a avery bad signal for investors.  A signal that the leaders see things likely to become much worse, with cash going out and revenue struggling, before too long.  So they are acting now to protect themselves.

Meanwhile, even as revenues grew 39% last quarter, there are signs of problems in Google's "core" market leadership is so fixated on defending.  As this chart shows, while volume of paid ads is going up, the price is now going down. Google price per click 4-2012

Source: Silicon Alley Insider

Prices go down when your product loses value.  You have to chase revenue.  Remember Proctor & Gamble's "Basics" product line launch?  Chasing revenue by cutting price.  In the short-term it can be helpful, but long-term it is not in your best interest.  Google isn't just cutting price on its incremental sales, but on all sales.  Increasingly advertisers are becoming savvy about what they can expect from search ads, and what they can expect from other venues – like Facebook – and the prices are reflecting expectations.  In a recent Strata survey the top 2 focus for ad executives were "social" (69%) and "display" (71%) – categories where Facebook leads – and both are ahead of "search."

At Facebook, we know the user base is around 800million.  We also know it's now the #1 site on the internet – more hits than Google.  And Facebook has much longer average user times on site.  All things attractive to advertisers.  Facebook is acquiring Instagram, which positions it much stronger on mobile devices, thus growing its market.  And while Google was talking about share splits, Facebook recently announced it was making Facebook email integrated into the Facebook platform much easier to use (which is a threat to Gmail) and it was adding a new analytics suite to help advertisers understand ad performance – like they are accustomed to at Google.  All of which increases Facebook's competitiveness with Google, as customers shift increasingly to social platforms.

As said at the top of this article, Google won't be gone soon.  But all signs point to a rough road for investors.  The company is ditching its game changing products and dumping enormous sums into me-too efforts trying to catch well healed and well managed market leaders.  The company has not created an ability to take new innovations to market, and remains stuck defending and extending its existing business lines.  And the top leaders just signaled that they weren't comfortable they could lead the company successfully, so they implemented new programs to make sure nobody could challenge their leadership. 

There are big fires burning at Google.  Unfortunately, burning those resources is producing a lot of heat – but not much light on a successful future.  It's time to sell Google.

Leading Google – Larry Page Needs More White Space

by | Apr 1, 2011 | Current Affairs, In the Rapids, Innovation, Leadership, Openness, Transparency, Web/Tech


Summary:

  • Google is locking-in on what it made successful
  • But as technologies, and markets, change Google could be at risk of not keeping up
  • Internal processes are limiting Google’s ability to adapt quickly
  • Google needs to be better at creating and launching new projects that can expand its technology and market footprint in order to maintain long-term growth

Google has been a wild success.  From nowhere Google has emerged as one of the biggest business winners at leveraging the internet.  With that great success comes risk, and opportunity, as Larry Page resumes the CEO position this year. 

Investors hope Google keeps finding new opportunities to grow, somewhat like Apple has done by moving into new markets with new solutions.  Where Apple has built strong revenue streams from its device and app sales in multiple markets, Google hasn’t yet demonstrated that success. Despite the spectacular ramp-up in Android smartphone sales, Google hasn’t yet successfully monetized that platform – or any other.  Something like 90% of revenues and profits still come from search and its related ad sales. 

Investors have reason to fear Google might be a “one-trick pony,” similar to Dell.  Dell was wildly successful as the “supply chain management king” during the spectacular growth of PC sales.  But as PC sales growth slowed competitors matched much of Dell’s capability, and Dell stumbled trying to lower cost with such decisions as offshoring customer service.  Dell’s revenue and profit growth slowed.  Now Dell’s future growth prospects are unclear, and its value has waned, as the market has shifted toward products not offered by Dell. 

Will Google be the “search king” that didn’t move on?

When companies are successful they tend to lock-in on what made them successful.  To keep growing they have to overcome those lock-ins to do new things.  The risk is that Google can’t overcome it’s lock-ins; that internal status quo police enforce them to the point of keeping new things from flourishing into new growth markets.  That the company becomes stale as it avoids investing effectively in new technologies or solutions.

At Slacy.com (“What Larry Page Really Needs to Do to Return Google to its Start-up Roots“) we read from a former Google employee that there are some serious lock-ins to worry about within Google: 

  1. The launch coordination process sets up a status quo protection team that keeps things from moving forward.  When an internal expert gains this kind of power, they maintain their power by saying “no.”  The more they say no, the more power they wield.  Larry Page needs to be sure the launch team is saying “here’s how we can help you launch fast and easy” rather than “you can’t launch unless…”
  2. Hiring is managed by a group of internal recruiters.  When the people who actually manage the work don’t do recruiting, and hiring, then the recruits become filtered by staffers who have biases about what makes for a good worker.  Everything from resume screening to background reviews to appearances become filters for who gets interviewed by engineers and managers.  In the worst case staffers develop a “Google model employee” profile they expect all hires to fit.  This process systematically narrows the candidates, leading to homogeneity in hiring, a reduction in new approaches and new ways of thinking, and a less valuable, dynamic employee population.
  3. Increasingly engineers are forced to use a limited set of Google tools for development.  External, open source, tools are increasingly considered inferior – and access to resources are limited unless engineers utilize the narrow tool set which initially made Google successful. The natural outcome is “not invented here” syndrome, where externally created products and ideas are overlooked – ignored – for all the wrong reasons.  When you’re the best it’s easy to develop “NIH,” but it’s also really risky in fast moving markets like technology where someone really can have a better idea, and implement, from outside the halls of the early leader. 

These risks are very real.  Yet, in a company of Google’s size to some extent it is necessary to manage launches systematically, and to have staffers doing things like recruiting and screening.  Additionally, when you’ve developed a set of tools that create success on an enormous scale it makes sense to use them.  So the important thing for Mr. Page to do is manage these items in such a way that lock-in doesn’t keep Google from moving forward into the next new, and possibly big, market.

Google needs to be sure it is not over-managing the creation of new things.  The famous “20% rule” at Google isn’t effective as applied today.  Nobody can spend 80% of their job conforming to norms, and then expect to spend 20% “outside the box.”  Our minds don’t work that way.  Inertia takes over when we’re at 80%, and keeps us focused on doing our #1 job.  And we never find the time to really get started on the other 20%.  And it’s unrealistic to try dedicating an entire day a week to doing something different, because the “regular job” is demanding every single day.  Likewise, nobody can dedicate a week out of the month for the same reason.  As a result, even when people are encouraged to spend time on new and different things it really doesn’t happen.

Instead, Google needs a really good method for having ideas surface, and then creating dedicated teams to explore those ideas in an unbounded way.  Teams that have as their only job the requirement for exploring market needs, product opportunities, and developing solutions that generate profitable new revenue.  Five people totally dedicated to a new opportunity, especially if their success is important to their career ambitions, will make vastly more headway than 25 people working on a project when they can “find the time.”  The bigger team may have more capabilities and more specialties, but they simply don’t have the zeal, motivation or commitment to creating a success.  Failing on something that’s tertiary to your job is a lot more acceptable, especially if your primary work is going well, than failing on something to which your wholly dedicated.  Plus, when you are asked to support a project part-time you do so by reinforcing past strengths, not exploring something new.

Especially worrisome is Inc magazine’s article “Facebook Poaches Inc’s Creative Director.”  This is the fellow that created, and managed, the new opportunity labs at Google.  What will happen to those now?

These teams also must have permission to explore the solution using any and all technology, approaches and processes.  Not just the ones that made Google successful thus far.  By utilizing new technologies, which may appear less robust, less scalable and even initially less powerful, Google will have people who are testing the limits of what’s new – and identifying the technologies, products and processes that not only threaten existing Google strengths but can launch Google into the next new, big thing.  Supporting their needs to explore new solutions is critical to evolving Google and aiding its growth in very dynamic technologies and markets.

The major airlines all launched discount divisions to compete with Southwest.  Remember Song and Ted?  But these failed largely because they weren’t given permission to do whatever was necessary to win as a discount airline.  Instead they had to use existing company resources and processes – including in-place reservation systems, labor union standards, existing airports and gates – and honor existing customer loyalty programs.  With so many parameters pre-set, they had no hope of succeeding.  They lacked permission to do what was necessary because the airlines bounded what they could do.  Lock-in to what already existed killed them.

The concern is that Google today doesn’t appear to have a strong process for creating these teams that can operate in white space to develop new solutions.  Google lacks a way to get the ideas on the agenda for management discussion, rapidly create a team dedicated to the tasks, resource the teams with money and other necessary tools, and then monitor performance while simultaneously encouraging behaviors that are outside the Google norms.  Nobody appears to have the job of making sure good ideas stay inside Google, and are developed, rather than slipping outside for another company to exploit (can you say Facebook – for example?)

I’m a fan of Google, and a fan of the management approaches Larry Page and Google have openly discussed, and appear to have implemented.  Yet, success has a way of breeding the seeds of eventual failure.  Largely through the process of building strong sacred cows – such as in technology and processes for all kinds of activities that end up limiting the organization’s ability to recognize market shifts and implement changes.  Success has a way of creating staff functions that see themselves as status quo cops, dedicated to re-implementing the past rather than scouting for future requirements.  The list of technology giants that fell to market shifts are legendary – Cray, DEC, Wang, Lanier, Sybase, Netscape, Silicon Graphics and Sun Microsystems are just a few. 

It’s good to be the market leader.  But Larry Page has a tough job.  He has to manage the things that made Google the great company it is now – the things that middle management often locks in place and won’t alter – so they don’t limit Google’s future.  And he needs to make sure Google is constantly, consistently and rapidly implementing and managing teams to explore white space in order to find the next growth opportunities that keep Google vibrant for customers, employees, suppliers and investors.

View a short video on Lock-in and why businesses must evolve http://on.fb.me/i2dekj

Electric Utilities Need to Plan Like Google – Lessons from Japan

by | Mar 22, 2011 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Lock-in, Web/Tech


Summary:

  • The Japanese nuclear crisis is the result of historical industry decisions to build very large facilities and transmit power to distant locations – a strategy at risk of “force majure” activities
  • U.S. electric utilities are locked-in to identical approaches to generation and transmission, which puts them at equal risk AND limits their willingness to innovate or implement new solutions
  • Historical industry approaches to planning are all based on extending the past, even though new technologies and approaches offer potentially better, and less risky, solutions. Utilities are merely one example
  • Google is expert in a far better planning approach, using scenario planning for identifying and taking to market innovations and new solutions
  • All companies, would benefit from planning like Google, rather than using traditional approaches – and several are bullet listed below
  • The electric utility industry really needs to adopt a Google approach, or everyone remains at risk

Everybody is now aware of the great radiation risk Japan faces from its damaged nuclear reactor powered electricity generators.  This has repercussions on U.S. electric utilities, as Americans have renewed concerns about the safety of similar General Electric supplied reactors. 

For example, Crain’s Chicago Business reports “Exelon Faces Regulatory Fallout After Japanese Nuclear Disaster.”  The country’s largest nuclear plant operator is facing stepped-up reviews, likely delays in expansion, and discussions about long-term viability of facilities that are 30 years into an anticipated 40 year life.  All of this threatens the viability of meeting affordable electricity needs for millions of midwestern Americans in as little as 5 years.  And it puts a lot of risk on the viability of Exelon as a going concern should the regulators require extensive re-investment to keep the plants open, or build replacements – most likely without a rate increase. All utilities dependent upon nuclear – and coal as well – for generation are now facing significant challenges.

This points out a horrible weakness in planning by most participants in America’s electric utility industry.  Almost all planning boils down to “we need to increase capacity to meet needs.  The cost of new plants, plant expansions and transmission lines from massive facilities to customers is $X, therefore, we need to lobby regulators, rate-setters and the populace to allow us a rate increase of $.xxx per kilowatt hour to cover the cost.”  Planning entirely driven by the past.  Projecting the future based upon historical demand, sources of generation, cost of fuel, etc. utilities mostly keep planning to do what they have always done, and asking regulators and customers to fund doing what they always did.  If you want anything new (like a renewables effort) then the companies want the cost for that added on top of the “business as usual” price increase.

But customers are increasingly tired of hearing about rising rates, while they are constantly trying to conserve.  The old “compact” in which the price regulators guaranteed utilities a rate of return is under considerable stress.  Increasingly, people are asking why they need to pay more, why these plants are so expensive, why the industry keeps doubling down on old technologies and fuel sources.  Customers, and regulators, are asking for innovation, but the industry offers almost nothing, because it’s planning is all about extending the past, and defending its historical approach and investments. 

Today we know that the industry’s future will not be like the past.  Increasingly customers (with government support in many cases) are demanding changes in the sourcing of electricity.  Requesting decommissioning of polluting generators (coal in particular), shut-downs of perceived risky, and now aging, nuclear facilities, more supply from renewable, or sustainable, sources — and without higher prices. 

There are a lot of new technologies available.  And some customers recommend a dramatic change in approach, from huge, centralized generation facilities to many smaller, safer, renewable generation facilities that are decentralized and closer to end-users.  But most industry veterans are unable to even consider these options, because they see no way to get to the future from today.  They are locked-in to defending and extending what the industry has always done, even if it means extending known risks, environmental concerns and creating higher prices for fuel and maintenance.

And that’s where Larry Page and Google have a lot to offer the utility industry planners.  Instead of planning from the past forward, Google plans from the future back to the present.  By helping employees develop future scenarios the leaders at Google identify far better solutions than the linear, historical planning approaches.  Once a better future is identified, then the organization is unleashed to create that future by planning backward from the scenario, figuring out how to implement it.

Wired magazine, in “Larry Page Wants to Return Google to its Start-up Roots” gives great insights to how Google has created a $30B business in a decade – using scenario planning at the heart of its approach to business.

  • Don’t fear being audacious when setting goals.  Even if you don’t reach the ultimate goal, your improvement could be game-changing for the industry and greatly benefit the early adopter
  • Instead of saying trying to help somebody with an immediate question, ask what would have the maximum impact in 10 years.  Don’t just accept more of the same, look for the best answer
  • Leaders should not fear being viewed as having stepped into the future, and returned to tell everyone what they’ve seen
  • Don’t assume that the way things are done is the best way.  Instead, ask “why is it done like that?  Is there possibly a better way?”
  • Is the obstacle to future success something that is impossible – say because of the laws of physics – or is the obstacle a need for resources – in engineering, scale design or implementation?  Don’t confuse things that can’t be done with things that simply lack resources (even if the initial resource demand seems very high)
  • When someone pitches an idea, leader’s should avoid questioning the viability.  Rather, they should offer a variation that is an order of magnitude more ambitious and ask why the latter cannot be accomplished.
  • Ask regulators what they want, and try really hard to achieve that goal rather than arguing with them. Offer creative solutions that are non-traditional, but that just might achieve the goal.  Change the conversation to achieving the goal, rather than extending the past.
  • If an idea requires creative thinking, be excited about it.  Don’t hesitate to represent unrealistic expectations.
  • Speed is really, really important.  If there is merit, rush it toward the future state as fast as possible.  Let implementation and the marketplace determine what’s successful, rather than trying to guess.
  • Do the numbers, but don’t expect those who disagree to believe your numbers.  It’s easy for people to pooh-pooh projections.  Don’t let disagreement over forecasts stop you from proceeding.
  • Don’t let potential legal problems stop you.  Take action, and deal with legal issues when, and if, they arise.

Planning for the future, and being ambitious about what that future entails, has created a slew of new products from Google that have benefited everyone around the world.  Google’s use of scenario planning to drive development and investments is a business implementation of an historical echo – asking not what Google needs from historical customers to succeed, but rather what Google can do to create something future customers will value.  Google uses planning to rush headlong into providing a growing and profitable future, rather than trying to optimize the historical solution.

Giant, centralized distribution facilities that use nuclear or fossil fuels, then sending electricity over massive distances losing upwards of 70-80% of the power in transmission, is the historical utility industry approach.  For a very long time it worked pretty darn well.  But the limitations of that approach are being seen, and felt, in many locations – causing blackouts in various regions, health risks in others, rising polution levels, rising demands for limited fuels, higher costs (especially for maintenance and upgrades) and potential deadly disasters from unexpected events of mother nature. Industry outsiders question whether America’s growth will be limited (due to supply or pricing issues) if this approach is not changed.

Lots of options exist for the electric utility industry to do things differently.  But it will take a big change in how the industry leaders plan. Maybe they’ll ask the folks at Google for a few ideas on how to change their approach to planning.  Can you imagine a future where Google managed the electric grid?

Why Innovation Ain’t So Easy Mr. President – Look to Google, not GE

by | Jan 27, 2011 | Current Affairs, Innovation, Leadership, Lock-in, Science, Web/Tech


Summary:

  • The President has called for more innovation in America
  • But American business management doesn’t know how to be innovative
  • Business leaders focus on efficiency, not innovation
  • America has no inherent advantage in innovation
  • To increase innovation we need a change in incentives, to favor innovation over efficiency and traditional brick-and-mortar investments
  • We need to highlight leaders that have demonstrated the ability to create jobs in the information economy, not the “old guard” just because they run big, but floundering, companies

It was good to hear the U.S. President call for more innovation in his State of the Union address this week.  And it sounded like he wants most of that to come from business, rather than government.  But I’m reminded the President is a lawyer and politician.  As a businessman, well, let’s say he’s a bit naive.  Most businesses don’t have a clue how to be innovative, as Forbes pointed out in November, 2009 in “Why the Pursuit of Innovation Usually Fails.”

Businesses by and large are not designed to be innovative.  Modern management theory, going back to the days of Frederick Taylor, has been dominated by efficiency.  For the last decade businesses have reacted to global competitive forces by seeking additional efficiency.  Thus the offshoring movement for information technology and manufacturing eliminated millions of American jobs driving unemployment to double digits, and undermines new job creation keeping unemployment stubbornly high. 

It is not surprising business leaders avoid innovation, when the august Wall Street Journal headlines on January 20 “In Race to Market, It Pays to Be Latecomer.” Citing a number of innovator failures, including automobiles, browsers and small computers, the journal concludes that it is smarter business to not innovate. Rather leaders should wait, let someone else innovate and then hope they can take the idea and make something of it down the road. Not a ringing pledge for how good management supports the innovation agenda! 

The professors cited in the Journal article take a fairly common point of view.  Because innovators fail, don’t be one.  Lower your risk, come in later, hope you can catch the market at a future time.  It’s easy to see in hindsight how innovators fail, so why take the risk?  Keep your eyes on being efficient – and innovation is anything but efficient! Because most businesspeople don’t understand how to manage innovation, don’t try.

As discussed in my last blog, about Sara Lee, executives, managers and investors have come to believe that cost cutting, and striving for more efficiency, is the solution for most business problems.  According to the Washington Post, “Immelt To Head New Advisory Board on Job Creation.” The President appointed the GE Chairman to this highly visible position, yet Mr. Immelt has spent most of the last decade shrinking GE, and pushing jobs offshore, rather than growing the company – especially domestically.  Gone are several GE businesses created in the 1990s – including the recent spin out of NBC to Comcast.  It’s ironic that the President would appoint someone who has overseen downsizings and offshoring to this position, instead of someone who has demonstrated the ability to create jobs over the last decade.

As one can easily imagine, efficiency is not the handmaiden of innovation.  To the contrary, as we build organizations the desire for efficiency and “professional management” impedes innovation.  According to Portfolio.com in “Can Google Be Entrepreneurial” even Google, a leading technology company with such exciting new products as Android and Chrome, has replaced its CEO Eric Schmidt with founder Larry Page in order to more effectively manage innovation.  The contention is that the 55 year old professional manager Schmidt created innovation barriers. If a company as young and successful as Google struggles to innovate, one can only imagine the difficulties at traditional, aged American businesses!

While many will trumpet America’s leadership in all business categories, Forbes‘ Fred Allen is correct to challenge our thinking in “The Myth of American Superiority at Innovation.”  For decades America’s “Myth of Efficiency” has pushed organizations to streamline, cutting anything that is not totally necessary to do what it historically did better, faster or cheaper. Innovation inside businesses was designed to improve existing processes, usually cutting cost and jobs, not create new markets with high growth that creates jobs and economic growth.  Most executives would 10x rather see a plan to cut costs saving “hard dollars” in the supply chain, or sales and marketing, than something involving new product introduction into new markets where they have to deal with “unknowns.”  Where our superiority in innovation originates, if at all, is unclear.

Lawyers are not historically known for their creativity.  Hours spent studying precedent doesn’t often free the mind to “think outside the box.”  Business folks have their own “precedent managers” – internal experts who set themselves up intentionally to block experimentation and innovation in the name of lowering risk, being conservative and carefully managing the core business.  To innovate most organizations will be forced to “Fire the Status Quo Police” as I called for last September here in Forbes.  But that isn’t easy. 

America can be very innovative.  Just look at the leadership America exerts in all things “social media” – from Facebook to Groupon! And look at how adroitly Apple has turned around by moving beyond its roots in personal computing to success in music (iPod and iTunes), mobile telephony and data (iPhone) and mobile computing (iPad).  Netflix has used a couple of rounds of innovation to unseat old leader Blockbuster! But Apple and Netflix are still the rarities – innovators amongst the hoards of myopic organizations still focused on optimization.  Look no further than the problems Microsoft – a tech company – has had balancing its desire to maintain PC domination while ineffectively attempting to market innovation. 

What America needs is less bully pulpit, and more action if you really want innovation Mr. President:

  • Increase tax credits for R&D
  • Increase tax deductions and credits for new product launches by expanding the definition of what constitutes R&D in the tax code
  • Implement penalties on offshore outsourcing to discourage the efficiency focus and the chronic push to low-cost global resources
  • Lower capital gains taxes to encourage wealth creation through new business creation
  • Manage the deficit by implementing VAT (value added taxes) which add cost to supply chain transactions, thus lowering the value of “efficiency” moves
  • Make it much easier for foreign graduate students in America to receive their green cards so we can keep them here and quit exporting some of the brightest innovators we develop to foreign countries
  • Create more tax incentives for investing in high tech – from nanotech to biotech to infotech – and quit wasting money trying to favor investments in manufacturing.  Provide accelerated or double deductions for buying lab equipment, and stretch out deductions for brick-and-mortar spending. Better yet, quit spending so much on road construction and simply give credits to people who buy lab equipment and other innovation tools.
  • Propose regulations on executive compensation so leaders aren’t encouraged to undertake short-term cost cutting measures merely to prop up short-term profits at the expense of long-term viability
  • Quit putting “old guard” leaders who have seen their companies do poorly in highly placed positions.  Reach out to those who really understand the information economy to fill such positions – like Eric Schmidt from Google, or John Chambers at Cisco Systems.
  • Reform the FDA so new bio-engineered solutions do not follow regulations based on 50 year old pharma technology and instead streamline go-to-market processes for new innovations
  • Quit spending so much money on border fences, DEA crack-downs on marijuana users and giant defense projects.  Put the money into grants for universities and entrepreneurs to create and implement innovation.

Mr. President,, don’t expect traditional business to do what it has not done for over a decade.  If you want innovation, take actions that will create innovation.  American business can do it, but it will take more than asking for it.  it will take a change in incentives and management.