Which countries are the global innovation powerhouses?

In many ways, the past year has represented an inflection point in technological advancement. Almost overnight, OpenAI’s large language model ChatGPT became a household name and AI was within reach to the masses.

Yet looking under the surface, innovation is influenced by several unseen factors, from the institutional environment and high-tech exports to research talent and entrepreneurship culture.

This graphic shows the most innovative countries in the world, based on the 2023 Global Innovation Index (GII) put together by the World Intellectual Property Organization.

How is Innovation Measured?

The GII framework uses seven pillars and 80 indicators to assess a country’s innovative strength:

Innovation Pillar	Example Indicators
Knowledge & Tech Outputs	Patent applications, Hi-tech manufacturing
Human Capital & Research	Researchers per million population, Global corporate R&D investors
Business Sophistication	Knowledge-intensive employment, University-industry R&D collaboration
Market Sophistication	Finance for startups, Venture capital received
Creative Outputs	Trademark applications, Global brand value
Infrastructure	Environmental performance, Information and communication technology access
Institutions	Regulatory quality, Policies for doing business

Together, the sum of these pillars produces an overall score for each country.

Most Innovative Countries in 2023

For the 13th consecutive year, Switzerland was named the world’s most innovative country.

Among the key factors underscoring its rank are its policies for doing business and its scale of patent applications. Its world-class research institutions and skilled workforce are also key ingredients in fostering innovation.

Below, we show the most innovative countries in 2023 across 132 economies:

Rank	Country	Score
1	Switzerland	67.6
2	Sweden	64.2
3	U.S.	63.5
4	UK	62.4
5	Singapore	61.5
6	Finland	61.2
7	Netherlands	60.4
8	Germany	58.8
9	Denmark	58.7
10	South Korea	58.6
11	France	56.0
12	China	55.3
13	Japan	54.6
14	Israel	54.3
15	Canada	53.8
16	Estonia	53.4
17	Hong Kong SAR	53.3
18	Austria	53.2
19	Norway	50.7
20	Iceland	50.7
21	Luxembourg	50.6
22	Ireland	50.4
23	Belgium	49.9
24	Australia	49.7
25	Malta	49.1
26	Italy	46.6
27	New Zealand	46.6
28	Cyprus	46.3
29	Spain	45.9
30	Portugal	44.9
31	Czech Republic	44.8
32	UAE	43.2
33	Slovenia	42.2
34	Lithuania	42.0
35	Hungary	41.3
36	Malaysia	40.9
37	Latvia	39.7
38	Bulgaria	39.0
39	Türkiye	38.6
40	India	38.1
41	Poland	37.7
42	Greece	37.5
43	Thailand	37.1
44	Croatia	37.1
45	Slovakia	36.2
46	Vietnam	36.0
47	Romania	34.7
48	Saudi Arabia	34.5
49	Brazil	33.6
50	Qatar	33.4
51	Russia	33.3
52	Chile	33.3
53	Serbia	33.1
54	North Macedonia	33.0
55	Ukraine	32.8
56	Philippines	32.2
57	Mauritius	32.1
58	Mexico	31.0
59	South Africa	30.4
60	Moldova	30.3
61	Indonesia	30.3
62	Iran	30.1
63	Uruguay	30.0
64	Kuwait	29.9
65	Georgia	29.9
66	Colombia	29.4
67	Bahrain	29.1
68	Mongolia	28.8
69	Oman	28.4
70	Morocco	28.4
71	Jordan	28.2
72	Armenia	28.0
73	Argentina	28.0
74	Costa Rica	27.9
75	Montenegro	27.8
76	Peru	27.7
77	Bosnia and Herzegovina	27.1
78	Jamaica	27.1
79	Tunisia	26.9
80	Belarus	26.8
81	Kazakhstan	26.7
82	Uzbekistan	26.2
83	Albania	25.4
84	Panama	25.3
85	Botswana	24.6
86	Egypt	24.2
87	Brunei	23.5
88	Pakistan	23.3
89	Azerbaijan	23.3
90	Sri Lanka	23.3
91	Cabo Verde	23.3
92	Lebanon	23.2
93	Senegal	22.5
94	Dominican Republic	22.4
95	El Salvador	21.8
96	Namibia	21.8
97	Bolivia	21.4
98	Paraguay	21.4
99	Ghana	21.3
100	Kenya	21.2
101	Cambodia	20.8
102	Trinidad and Tobago	20.7
103	Rwanda	20.6
104	Ecuador	20.5
105	Bangladesh	20.2
106	Kyrgyzstan	20.2
107	Madagascar	19.1
108	Nepal	18.8
109	Nigeria	18.4
110	Laos	18.3
111	Tajikistan	18.3
112	Côte d’Ivoire	18.2
113	Tanzania	17.4
114	Togo	16.9
115	Nicaragua	16.9
116	Honduras	16.7
117	Zimbabwe	16.5
118	Zambia	16.4
119	Algeria	16.1
120	Benin	16.0
121	Uganda	16.0
122	Guatemala	15.8
123	Cameroon	15.3
124	Burkina Faso	14.5
125	Ethiopia	14.3
126	Mozambique	13.6
127	Mauritania	13.5
128	Guinea	13.3
129	Mali	12.9
130	Burundi	12.5
131	Niger	12.4
132	Angola	10.3

Sweden ranked second, rising above the U.S. this year. The country excelled in business sophistication, knowledge-intensive employment, and researchers per capita.

While the U.S. ranked third overall, it saw the highest scores in venture capital received, global corporate research and development (R&D) investors, and total unicorn value. Of the 1,206 global unicorns as of April 2023, the U.S. was home to 54% of the total.

At fifth overall, Singapore ranked the highest in Asia. As both a financial hub and global innovator, Singapore ranked strongly on government effectiveness, venture capital received, and stability for business. It has the highest venture funding per capita in the world.

Brazil (49th) ranked highest in Latin America, while Mauritius (57th) was the top-ranking country in Sub-Saharan Africa.

Top 25 Science & Technology Clusters

Here are the top science and technology (S&T) clusters per capita, based on the density of scientific authors and inventors in a geographic location:

2023 Ranking	Cluster	Economy	Top Applicant	Top Scientific Organization
1	Cambridge	UK	ARM	Cambridge University
2	San Jose– San Francisco	U.S.	Google	Stanford University
3	Oxford	UK	Oxford University	Oxford University
4	Eindhoven	Netherlands	Philips Electronics	Eindhoven University of Technology
5	Boston– Cambridge	U.S.	MIT	MIT
6	Daejeon	South Korea	LG Chem	KAIST
7	Ann Arbor	U.S.	University of Michigan	University of Michigan
8	San Diego	U.S.	Qualcomm	University of California San Diego
9	Seattle	U.S.	Microsoft	University of Washington Seattle
10	Munich	Germany	BMW	Technical University of Munich
11	Kanazawa	Japan	Fujitsu	Kanazawa University
12	Raleigh	U.S.	Duke University	Duke University
13	Göteborg	Sweden	LM Ericsson	University of Gothenburg
14	Beijing	China	BOE Technology	Tsinghua University
15	Stockholm	Sweden	LM Ericsson	Karolinska Institutet
16	Helsinki	Finland	Nokia	University of Helsinki
17	Zürich	Switzerland	ETH Zürich	ETH Zürich
18	Tokyo–Yokohama	Japan	Mitsubishi Electric	University of Tokyo
19	Basel	Switzerland, Denmark, France	DSM IP Assets	University of Basel
20	Copenhagen	Denmark	Novo Nordisk	University of Copenhagen
21	Nuremberg–Erlangen	Germany	Siemens	University of Erlangen Nuremberg
22	Stuttgart	Germany	Robert Bosch	Eberhard Karls University of Tübingen
23	Minneapolis	U.S.	3M Innovative Properties	University of Minnesota Twin Cities
24	Pittsburgh	U.S.	University of Pittsburgh	University of Pittsburgh
25	Seoul	South Korea	Samsung Electronics	Seoul National University

As the top S&T cluster by intensity, Cambridge produced 37,000 articles per million people. Its top applicant, ARM, is a semiconductor company working closely with Cambridge University. Over 130 billion devices globally have used chips based on ARM’s designs.

The San Jose-San Francisco cluster ranked second, with Google as the top applicant. In 2022, the U.S. granted Google’s parent company Alphabet 2,077 patents.

South Korea’s Daejeon cluster is the top in Asia, led by battery maker LG Chem. In 2022, over 49,000 domestic and overseas patents were registered. In fact, both Honda and GM are partnering with LG Chem to build multi-billion dollar battery factories in Ohio over the next few years.

As we can see, many of the world’s most innovative countries have strong clusters that attract tech firms, researchers, and knowledge-intensive workers due to a host of factors that support disruption and tech advancement.

These tech clusters have a powerful effect on creating innovations that extend across multiple sectors of the economy, and the wider global landscape.

This content was originally published here.

The post Ranked: The Most Innovative Countries in 2023 appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

Innovation driven by disruption generates a new market and growth, but often with terrible social costs: the destruction of existing companies and jobs and damage to communities.

The Explanation

Most innovators have taken for granted that the surest path to growth is creating a new market by destroying the existing one. That overlooks an alternative approach to innovation that doesn’t disrupt the existing industry.

The Solution

Nondisruptive creation occurs outside the boundaries of existing industries, giving rise to markets where none existed before. Thus it fosters economic growth without incurring social costs, enabling business and society to thrive together.

The era of international travel began in the mid-19th century, with the golden age of transatlantic ocean-going. The British company Cunard, a leader in the industry, transported millions of immigrants from Europe to the United States around the turn of the 20th century. By the end of World War II it had emerged as the largest Atlantic passenger line, operating 12 ships to the United States and Canada as it captured the flourishing North Atlantic travel market in the first postwar decade.

That golden age came to an end with the advent of commercial jet flights. Whereas one million passengers crossed the Atlantic by boat in 1957, air travel caused that figure to fall to 650,000 by 1965, with roughly six people flying for each passenger going by sea. Ocean liners simply could not match the speed and convenience of jet planes.

But while other oceangoing companies were destroyed by the advent of the jet age, Cunard innovated “luxury vacationing at sea” and opened up the modern cruise industry. Until then ocean liners, like airplanes, had been viewed principally as a mode of transportation from point A to point B. Cunard changed that by making them platforms for recreation and star-studded entertainment.

Today Cunard is part of Carnival Corporation, and the cruise tourism industry it pioneered some 60 years ago generates revenues of about $30 billion annually and has created more than a million jobs. The creation of the cruise industry was clearly not incremental. Nor was it disruptive—the catchword that has come to dominate the innovation space. On the contrary, cruise tourism did not invade, destroy, or displace any existing market or industry. It was created without disruption.

An Alternative Path to Innovation and Growth

For the past 20 years “disruption” has been a leading battle cry in business: Disrupt this. Disrupt that. Disrupt or die. Whether it comes from the low end—the basis of Clay Christensen’s theory of disruptive innovation—or from the high end, the way commercial jet travel overtook ocean liners and Apple’s iPhone dominated mobile phones, corporate leaders have continually been told that the only way to innovate and grow is to disrupt their industries or even their own companies. Not surprisingly, many have come to see “disruption” as a near-synonym for “innovation.”

But the obsession with disruption obscures an important truth: Market-creating innovation isn’t always disruptive. Disruption may be what people talk about. It’s certainly important, and it’s all around us. But as our research and the case of Cunard reveal, it’s only one end of what we think of as the spectrum of market-creating innovation. On the other end is what we have come to call nondisruptive creation, through which new industries, new jobs, and profitable growth come into being without destroying existing companies or jobs.

Under disruption and its conceptual antecedent, Joseph Schumpeter’s “creative destruction,” market creation is inextricably linked to destruction or displacement. But nondisruptive creation breaks that link. It reveals an immense potential to establish markets where none existed before and, in doing so, to foster economic growth in a way that enables business and society to thrive together. In this article we will show how nondisruptive creation can complement disruption by offering an alternative path to market-creating innovation. We’ll begin with the significant impact it can have on growth, jobs, and society.

Three Ideas That Changed the World

Today most women in developed countries take sanitary napkins for granted, but that one innovation created a nondisruptive new market that has radically improved the lives of half the world’s population. Every month women use them to deal with the inconvenience (and messiness) of their menstrual cycles. But that wasn’t always the case. Before the advent of sanitary napkins, women used pieces of old cloth or even sheep’s wool, which were often dirty and could cause infection. They were uncomfortable, shifted when worn, and failed to prevent visible spotting and leakage. To avoid the embarrassment this caused, girls frequently stayed away from school for several days during their monthly cycles. Sanitary napkins took much of the stigma and dread out of menstruation: Girls could go to school and play sports without worry, and women could more easily work. Today the sanitary-napkin industry generates revenues of more than $22 billion a year.

Consider microfinance, an innovation that has transformed the lives of many of the world’s poorest people by making financial services available to those who subsist on less than a few dollars a day. Before the advent of microfinance, no bank or other financial institution was prepared to serve them, deeming them unsuitable as borrowers. By finding a way around that problem, Muhammad Yunus, the founder of Grameen Bank, enabled people who had previously been denied access to capital to create new microbusinesses, jobs, higher standards of living, and hope. Microfinance has become a multibillion-dollar industry with a staggering 98% loan-repayment rate and plenty of room for future growth.

Corporate leaders have continually been told that the only way to innovate and grow is to disrupt their industries or even their own companies.

Now consider the television program Sesame Street, which teaches preschool children how to count, name colors and shapes, and recognize the letters of the alphabet. The best part is that kids have so much fun watching it, with its lovable Muppets and songs, that they don’t even realize how much they’re learning. Sesame Street did not displace preschools, libraries, or even parents who were reading bedtime stories to their children. Rather, it gave rise to a new industry—preschool edutainment—that for the most part had not existed before. Today it is a multibillion-dollar industry. And Sesame Street has become the most successful, longest-running children’s television show in history, winning scores of Emmy Awards and 11 Grammys. It has viewers in more than 150 countries.

Although those three cases are disparate, they are all examples of nondisruptive creation. As our book Beyond Disruption shows, there are many others, in fields as diverse as cybersecurity, men’s cosmeceuticals, environmental consulting, life coaching, pharmaceuticals, and smartphone accessories—not to mention the emerging space tourism industry led by companies such as Virgin Galactic, SpaceX, and Blue Origin. All those have created or are creating new multibillion-dollar industries, growth, and employment, without displacing any existing markets, players, or jobs.

A Distinct New Concept

From the examples we’ve just presented and the others we’ve studied, we’ve identified three fundamental characteristics of nondisruptive creation. First, it can occur with either new or existing technology. It may stem from a scientific invention or a technology-driven innovation, as sanitary pads and space tourism did. But it can also be generated without such innovation, as was the case with microfinance, or with a new combination or application of existing technology, as with Sesame Street, which leveraged television.

Second, nondisruptive creation is applicable across geographic areas, from developed markets to bottom-of-the-pyramid markets, and at all levels of socioeconomic standing. Sesame Street and sanitary pads were created in and initially for developed economies, while microfinance was created in and initially for the bottom of the pyramid. Cunard cruises were initially for people in the upper to middle tiers of socioeconomic standing, and microfinance was initially for the lower tier.

Third, nondisruptive creation can be new-to-the-world innovation, but the two are not equivalent. For one thing, many new-to-the-world innovations are disruptive, as commercial jet travel was to ocean liners. For another, nondisruptive creation can be new to an area but not new to the world. Take Ping An Good Doctor, which built a nondisruptive market of primary health care in China. No such service had existed there before, whereas the West, for example, already had a primary care market.

From Blue Ocean Strategy to Nondisruptive Creation

After the publication of our books Blue Ocean Strategy and Blue Ocean Shift, a question repeatedly popped up from business leaders, academics, and consultants working in the field of innovation: How does blue ocean strategy differ from creative destruction, disruption, or disruptive innovation?

To address that question, we reexamined our blue ocean data from the innovation angle and found that although a few cases, such as Novo Nordisk’s insulin pen, largely displaced the existing offerings in their own industries, most blue oceans in our data were created not within existing industry boundaries but across them. Cirque du Soleil, for instance, created a new market space across the existing boundaries of circus and theater. Although it pulled some market share from both, generating a measure of disruption, it did not significantly displace either.

However, our examination also revealed something else that greatly intrigued us. Among the cases that had been added to our original database over time, a few had triggered no disruption or displacement. That piqued our curiosity. Did those cases represent a few unconnected anomalies, or were they examples of a new kind of innovation? If the latter, why had it been largely overlooked in the literature on innovation and growth? What were its implications for business and society, now and in the future? And was there a process or an approach by which we could realize this new kind of innovation in a systematic way? To answer those questions we collected historical and current cases of nondisruptive creation across the for-profit, nonprofit, and public sectors and built a database on nondisruptive creation and the managerial actions involved in it.

Our research showed that nondisruptive creation is distinct from both disruption and blue ocean strategy, with a correspondingly distinct impact on growth. Whereas disruption generates new markets within existing industry boundaries, resulting in a high level of disruptive growth, and blue ocean strategy creates new markets across existing industry boundaries, producing a mix of disruptive and nondisruptive growth, nondisruptive creation generates new markets outside existing industry boundaries and yields mostly nondisruptive growth. Our book Beyond Disruption details our journey and offers the answers we found to the questions we asked.

What all this means is that nondisruptive creation is not the same as—nor should it be confused with—scientific invention or technological innovation or new-to-the-world products or services. Nor is it concerned with a specific geographic market, such as the bottom of the pyramid, or a certain socioeconomic level, such as the low end. It is distinct from existing innovation concepts and can be defined as “the creation of a brand-new market beyond the boundaries of existing industries.” That means that no existing market or established players are disrupted and fail, and no jobs are lost. (For a discussion of our research on this, see the sidebar “From Blue Ocean Strategy to Nondisruptive Creation.”)

How the Economic and Social Impacts Differ

Consider these examples: Netflix versus Blockbuster, Amazon versus booksellers and Main Street retailers, and Uber versus taxis. They come from different industries, but they have three key factors in common: They’re all cases of disruption. They all reflect a clear win-lose situation. And they all impose painful adjustment costs on society. Let’s explore this.

On the positive side, consumers win big-time. That’s why people gravitate to disruptive offerings. For a product or a service to disrupt, it must deliver a leap in value (typically underscored by a new business model); otherwise the industry won’t be thrown into disarray, and purchasers, whether they be businesses or consumers, will see no reason to shift from the incumbent offering to the new one.

In economic terms we can say that the consumer surplus delivered by the disrupter is high, and society’s resources are allocated where they are deemed to be better used. That’s why disruption tends to grow industries as well as upend them: The compelling value it unlocks draws people who didn’t previously purchase incumbents’ products or services, and it inspires incumbents’ existing customers to use the new offerings more frequently. For example, more people watch Netflix than used to rent DVDs from Blockbuster, and more people take digital photos than ever took photos with film—just as more people cross the ocean in planes than ever did on ocean liners, and with greater frequency.

But growth here is achieved in a win-lose way. The disrupter’s success comes at the direct expense of existing players and markets. Which brings us to the second commonality: Disruption imposes a clear trade-off between winners and losers. In some cases one wins and everyone else loses. That’s because the leap in consumer surplus provided by the disrupter can nearly wipe out the existing industry and its incumbent players. Amazon didn’t merely displace Borders’ 1,200 stores, along with countless independent booksellers, and take a huge chunk out of Barnes & Noble’s sales. It is now doing the same to Main Street retailers and department stores in the United States and other countries it operates in.

Nondisruptive creation is applicable across geographic areas, from developed markets to bottom-of-the-pyramid markets, and at all levels of socioeconomic standing.

Although the disrupter is hailed as a winner in the press, and purchasers and investors flock to it, this win-lose approach triggers the third commonality: painful adjustment costs for society, often hidden by the euphoria and glamour that surround disruption. For example, in New York City, Uber’s largest U.S. market, the company has had a huge impact on taxi drivers and medallion owners who bought the right to operate a taxi in the city. Long seen as a retirement ticket, taxi medallions have plunged in value from more than $1 million to as little as $175,000 since the appearance of Uber and other ride-hailing services, and taxi drivers’ earnings have nosedived by as much as 40%. Many drivers must now work double shifts just to survive. Bankruptcies, foreclosures, evictions, and even suicides have resulted. Such negative aftershocks are felt worldwide in major cities that Uber and similar services have entered. The same disruptive force that has enriched consumers with its leap in value has hurt others in the process. The human costs of Amazon’s disruption are even more pronounced: Retail jobs may not be glamorous, but they provide a livelihood for millions of people. And the visual effect of boarded-up stores wears on people’s psyches and tarnishes a community.

In theory, disruption should generate higher growth and new jobs, but painful adjustment costs exist in the short run. For example, Amazon’s disruption of booksellers and retail has led to as many as 900,000 jobs lost and huge existing-asset obsolescence. And although Amazon’s workforce had climbed from 200,000 to 800,000 when Covid hit, and its net positive impact on jobs and growth has increased since, the jobs it is creating are not necessarily located where the old jobs were lost and may not rest on the same skills and knowledge as those of the workers let go. People who were laid off may still be reeling, especially if they’re in rural communities where local jobs were scarce to begin with.

Even though, at the macro level, disruption yields aggregate long-run growth, the ensuing adjustment costs often trigger a backlash from social interest groups, government agencies, and nonprofit associations seeking to minimize the carnage. (Of course, if an industry has a pronounced negative effect on the environment or the well-being of people, the trade-off may be small relative to the overall benefit to society of disrupting and displacing that industry.)

Adjustment costs are where nondisruptive creation breaks from disruption. By effectively disentangling market creation from market destruction, it allows organizations to grow with little asset obsolescence and social pain. All else being equal, it can be seen as a positive-sum approach to innovation—a much-needed complement to disruption as a pathway to growth. Let’s explore that idea.

Disruption vs. Nondisruptive Creation

The impact of nondisruptive creation can be distinguished from that of disruption at three levels. The micro level focuses on individual organizations, the meso level on groups or their interactions, and the macro level on the economy or society.

Generates growth through the displacement and expansion of existing market space

Nondisruptive creation

Generates growth through the creation of new market space beyond existing industries

Losers: disrupted organizations and their employees

Produces a positive-sum outcome

Winners: the nondisruptive creator and consumers

Incurs social adjustment costs from shuttered organizations, lost jobs, and hurt communities

Short-term growth comes with social pain, although the net gain in growth over time is positive

Nondisruptive creation

Incurs no evident social adjustment costs because there is no displacement

The gains in economic growth and employment are positive from the start, with no social pain

Toward a Positive-Sum Outcome

Like disruption, nondisruptive creation delivers compelling value for buyers, whether they are consumers or businesses. That’s why we purchase or use the product or service, and the new market materializes. Without exceptional value, the new market will not take off. In contrast to disruption, however, nondisruptive creation produces no evident losers and only minimal painful adjustment costs. From the start it has a positive impact on growth and jobs.

Kickstarter, for example, saw that literally thousands of people had wildly imaginative projects they dreamed of creating but lacked the capital to pursue. Because most artists are aiming first and foremost to realize a vision, not to generate ROI, it should come as no surprise that Kickstarter’s online crowdfunding platform didn’t eat into the existing finance industry or displace even a tiny share of existing equity investors’ or venture capitalists’ profits, growth, or investment opportunities. And because backers receive no monetary incentives on Kickstarter—only cool merchandise or other recognition, such as a shout-out on the creative’s website—a new set of investors emerged: people who care about creative work and want to help others realize their dreams.

Hailed after its launch as one of Time magazine’s 50 best inventions of the year, Kickstarter succeeded while creating few if any losers. Within three years of its advent it became profitable, and in its first decade it raised a staggering $4.3 billion for projects supported on its platform, funding more than 160,000 ideas that might have gone unrealized otherwise. According to a study at the University of Pennsylvania, Kickstarter estimates that more than 300,000 part-time and full-time jobs were created by its projects, along with 8,800 new companies and nonprofits, generating more than $5.3 billion in direct economic impact for those creators and their communities. No one lost a job because of Kickstarter, and no company went out of business because of it. It helped the artistic community flourish without unleashing hurt or painful adjustment costs. That was pretty much a win all around.

The Rising Importance of Nondisruptive Creation

Ever since the Nobel Prize–winning economist Milton Friedman introduced his theory of shareholder primacy, there has been a presumed trade-off between maximizing economic gain and social good. Friedman’s theory, which is at the heart of capitalism as we know it today, asserts that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.” Social issues beyond that fall outside the proper scope of the enterprise.

Yet for all the economic benefits this approach has brought, it is increasingly being challenged as the world wakes up to the costly social effects that result from the pursuit of profit maximization. And the public is becoming increasingly vocal about them, demanding that corporations expand their mission beyond profit and consider the impact of their actions on local communities and society at large. The result is an increase in discussions about the need for a socially responsible form of capitalism. Nondisruptive creation speaks to this, not by compromising economic good but by innovating new markets without destruction.

The influence of the fourth industrial revolution also underscores nondisruptive creation’s growing importance for the future. AI, smart machines, and robotics are on track to deliver previously unimaginable efficiencies, but they will do so by replacing an increasingly wide swath of existing human jobs. Studies show that smart machines are expected to displace about 20 million manufacturing jobs worldwide over the next decade, more than 1.5 million of them in the United States. Other studies predict that smart machines, robotics, artificial intelligence, blockchain technology, 3D printing, and automation will put 20% to 40% of existing jobs at risk over the coming decades, including a range of high-end jobs across most sectors, from medical to legal, finance, real estate, and journalism. And as recent advances show, AI is even capable of creating beautiful original art and music.

To absorb all the released human capital, new jobs will be needed—which brings us right back to the central driver of economic growth: market-creating innovation. The success of technology and the productivity it unleashes raise the premium on creativity and the establishment of new markets. The challenge for companies, governments, and society will be to create new jobs that don’t displace others. That is as much an economic imperative as it is a moral one—which is another reason why nondisruptive creation is about to become even more important. Microfinance has given nearly 140 million people loans to start microenterprises and be gainfully self-employed. Life coaching, another nondisruptive industry, is estimated to have created tens of thousands of new jobs. Environmental consulting has given rise to thousands of new jobs, and that number will no doubt grow as public concern mounts over environmental degradation. Nondisruptive creation is not the sole answer to the challenges we face; many other pieces of the puzzle are needed. But it should be part of any solution.

Identifying Nondisruptive Opportunities

So how can organizations go about finding and realizing opportunities for nondisruptive creation? To answer that question, we studied whether a pattern lies behind successful nondisruptive creations—and if so, what it looks like. Our aim was to codify the recurring thought processes and actions of nondisruptive creators so that other organizations could use them for maximum effect.

Three building blocks are key to nondisruptive creation: Identifying a nondisruptive opportunity, finding a way to unlock it, and securing the enablers needed to realize it in a high-value, low-cost way. In this article, because of space limitations, we focus on the first one. There are two main ways to identify a nondisruptive opportunity.

Address an existing but unexplored issue or problem.

Nondisruptive markets are created by solving a brand-new problem or uncovering a brand-new opportunity beyond existing industry boundaries. That doesn’t necessarily mean that the problem or the opportunity suddenly popped up. It may have long existed but—importantly—has remained unexplored because it wasn’t seen as a problem to solve or an opportunity for creation. Sometimes people have consciously or unconsciously accepted it as simply “the way things are.” Sometimes a reputable organization or individuals may have tried long ago to address the issue and failed, so people regard it as essentially impossible. And sometimes it may be taken for granted and accepted because people have patched together some form of nonmarket solution to the problem—as women did before the creation of sanitary pads.

Take Square (now Block). Jim McKelvey and Jack Dorsey, the founders, saw that individuals and microbusinesses were losing sales because they couldn’t accept credit card payments. That problem had long existed but had somehow been accepted as a natural struggle that goes hand in hand with running a small business. It was McKelvey’s direct loss of a sale for his glassblowing business that highlighted this existing but unexplored problem and made the two men passionate about solving it as they realized how many would benefit from this new market, from small businesses to pop-up shops, ice cream trucks, and even babysitters. Square’s solution, the Square Reader, created a nondisruptive new market. It had little if any effect on existing merchants and their credit card providers, and Square quickly grew into a billion-dollar company without facing any real backlash or fight from established players.

The idea that we can create new markets and grow without disrupting others suggests that business does not have to be a destructive, fear-based, win-lose game.

On a smaller scale, consider Mick Ebeling, Daniel Belquer, and their Not Impossible Labs. The fact that deaf people can’t experience music had long been taken for granted as an unfortunate fact of life. Ebeling and Belquer, however, saw it not as the inevitable destiny of the deaf but as a brand-new opportunity to innovate. So they and the rest of the team at Not Impossible Labs set out to change things with Music: Not Impossible. They realized that although sound vibrations enter the brain through the ears, it is the brain that “hears.” So to get vibrations to the brain, they used the skin instead of the ear, developing a wearable vibro-tactile device for deaf concertgoers—a vest, to be worn over a shirt, that contains a full sound system of 24 lightweight vibrators strategically placed at the waist, the neck, and the shoulders. The result was the world’s first rock concert for deaf people. Music: Not Impossible is now scaling up the delivery of its offering across the globe, from a music festival in London to an opera house in Philadelphia to the Brazilian Symphony Orchestra to silent discos at Lincoln Center, reaching out to the deaf and the hearing alike.

GoPro, Liquid Paper, Pfizer’s Viagra, Prodigy Finance, and, going back in time, the humble but indispensable windshield wiper and the dishwasher are just a few more of the countless nondisruptive creations generated by tackling existing but unexplored issues and problems with market solutions.

Address a newly emerging issue or problem.

Socioeconomic, environmental, demographic, and technological changes that have an impact on society or people’s lives give rise to new problems, opportunities, and issues. Offering an effective market solution to an emerging need or opportunity—beyond existing industry boundaries—opens the door to a nondisruptive new market. Consider the Tongwei Group, a Chinese aquatic-feed producer. Mounting global pressure for clean, low-carbon energy created a new push in China for green sources of energy, especially in the eastern and central regions, where industrial activity was concentrated and power demand was rising. Those regions are densely populated, with rural land reserved for agricultural use, leaving scant space for green-energy production facilities.

Seeing this emerging need, the Tongwei Group set out to create a brand-new, nondisruptive market by leveraging its business, which serviced millions of acres of fish-farm waters in eastern and central China. Although aquaculture was already an important source of revenue for individual farmers and local governments, Tongwei determined that the economic value of those water resources could be multiplied by using the water’s unutilized surface to produce green energy.

So the company created a nondisruptive, fishery-integrated, photovoltaic industry, which essentially combined an innovative cage-type aquacultural system that it had developed with a water-based photovoltaic system. Solar panels set above the water had the effect of lowering water temperatures and reducing photosynthesis and algal growth, which boosted the output of the fish farms. Meanwhile, Tongwei generated electricity with the solar panels. The results of this nondisruptive creation were higher incomes for fish farmers, a new source of green energy for the regions, more tax revenues for local governments, and a highly profitable new business for Tongwei. Tongwei’s new market disrupts no one and is expanding rapidly across China.

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Consider another nondisruptive market: e-sports. Youths had a fast-growing interest in watching skillful professionals play online video games, whether or not they were gamers themselves. In response, video-game makers and third-party e-sports organizers created professional in-person tournaments in which the most skilled players could compete in spectacular global events, held in massive arenas, with as many as 50,000 people in attendance and the players’ moves projected on panoramic screens. They entered into lucrative agreements to broadcast the events live around the world, with up to 100 million fans watching. In this way e-sports was crafted into a spectator sport distinct from gaming itself. Today the industry pulls in more than $1 billion in revenue and has some 175 million fans worldwide. Its creation and growth have not displaced any existing gaming or other sports industries.

The relevant questions are: What taken-for-granted problems that no industry exists to solve do you or your company observe or directly experience? What newly emerging issues are you or your organization encountering that have no industry addressing them and could create a real opportunity for you, your business, or the world? Are you actively scouting brand-new problems to solve and brand-new opportunities for creation? Do you have a mechanism, a process, or tools for doing so effectively?

As we seek to address the many challenges facing our planet and humanity, we will need innovative market-creating solutions. If they can be nondisruptive rather than disruptive, we believe, they will help bridge the gap between business and society, bringing people together rather than dividing them.

Much of business is about aggression and fear: beating the competition, stealing market share, disrupting or being disrupted. Most of us dislike those emotions and behaviors because they fill us with anxiety, making us feel we are under threat and may be marginalized or destroyed if we don’t strike first. It’s a scarcity-based view of the world. What if we could shift from fear to hope, from a mindset of scarcity to one of abundance? The idea that we can create new markets and grow without disrupting others suggests that business does not have to be a destructive, fear-based, win-lose game.

To be sure, fear can be effective. “Disrupt or die” is a strong motivator for an organization to act. But the hope of making a positive-sum contribution to business and society is equally strong. That’s why it’s important to understand and act on both ends of the spectrum of market-creating innovation, and why nondisruptive creation is an essential complement to disruption. Each has a role to play in building a compelling future.

Editor’s note: W. Chan Kim and Renée Mauborgne are the authors of Beyond Disruption: Innovate and Achieve Growth Without Displacing Industries, Companies, or Jobs (Harvard Business Review Press, 2023), from which this article is adapted.

Kim and Mauborgne redefine and expand the existing view of innovation by introducing a new approach, nondisruptive creation, that is free from the destructive displacement that happens when innovators set out to disrupt. Beyond Disruption shows how this new approach to innovation allows companies to grow while also being a force for good.

This content was originally published here.

The post Innovation Doesn’t Have to Be Disruptive appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

Economic uncertainty, social and political unrest, environmental catastrophe, and global health crises continue to impact people and businesses worldwide. Yet, amidst each of these disruptions, managers must maintain forward momentum to ensure their teams achieve success.

This past year we’ve seen tech giants fall due to mismanagement, recklessness, economic turmoil, a lack of innovation, or some combination of unforeseen circumstances. Yet simultaneously, new leaders have emerged: companies that have found opportunity in our world of perpetual uncertainty, seizing the moment, and taking a risk to move ahead.

Today’s digital world demands vigilance. Tech leaders must not only prepare their teams and organizations for disruption, but also ensure that their products and services are agile enough to embrace the unknown changes ahead. Global, existential forces are not the only drivers of disruption; tech managers must also navigate new regulatory pressures, unknown cyber-threats, a growing IT skills gap, breathless emerging technology hype, and more.

Here are five lessons that the tech world has learned this year about disruption, innovation and constant change, and the takeaways for managers to drive growth through transformation in the year ahead.

Economic uncertainty demands strategic digital investment.

Inflation and recessionary economic conditions are challenging businesses worldwide. In a down or deteriorating economy, conventional wisdom calls for cutting costs, including tech spending. Yet, Gartner data shows that IT spending will continue to increase (albeit tempered by inflation), with spending on tech forecast to grow more than 5% in 2023. Technology is deeply integrated into the global economy and must play a part in responses to economic turbulence, potential recession, and recovery. In the 1990s when IT was strictly “back office,” it was a cost that could be cut. Today, IT generates both efficiencies and revenue and cannot be cut without damaging business performance.

However, that’s not to say managers should bask in the safety net of a steady budget. Economic pressure heightens the desire and urgency to realize time-to-value for digital investments, and executives continue to demand better returns from tech spending. Current economic conditions provide an opportunity for businesses to strategically invest resources in technology solutions. As the recipients of this tech spending, managers must ensure they maximize returns for the business through strategic technology deployments.

For example, automating finance processes to facilitate fast and accurate data analysis can support the business in making sound financial decisions during times of uncertainty. Migrating to cloud-based infrastructure services and cloud-native applications can drive better IT cost and operational efficiency. Expansion of citizen development initiatives with no-code or low-code tools can support agility and speed across departments. Within all business functions, consider opportunities to use technology to reshape revenue streams, change cash flow, or create new value propositions. Through strategic digitalization, managers can help their enterprise to emerge from economic disruption stronger, leaner, and more innovative.

Labor market volatility inhibits innovation.

Tech managers are no stranger to labor market volatility. From the Great Resignation of 2021 and beyond, to massive layoffs at digital giants that have dominated news headlines in recent months, it seems that the tech workforce is constantly being upended. Employees continue to leave their roles because of burnout and low job satisfaction. Managers struggle to hire crucial tech talent, yet when their teams are finally filled out, constantly increasing tech salary demands puts a strain on budgets and can lead to layoffs. This kind of constant disruption is incompatible with innovation. Gartner analysts have predicted that by 2025, labor volatility will cause 40% of organizations to report a material business loss, forcing a shift in talent strategy from acquisition to resilience. In other words, talent retention is becoming as critical as profit margins or customer retention on the balance sheet.

The organizations that we see solving the talent volatility problem do so by looking for technical talent that is likely to stick around instead of continuing to seek out “unicorns.” Rather than fixate on technical wizardry, they look for people with the baseline skills they need, who are interested in business operations. Employees who will stay at the organization for five years (or more) stand to generate far more business value than high-flying superstars who might move on to their next job within 18 months. Hiring and retaining the right talent also creates a virtuous cycle, as top talent desires to work for organizations that are innovative. In a recent Gartner survey, more than 50% of employees reported a desire to contribute to meaningful work that drives change.

In 2023, tech managers must hire for staying power and long-term value contribution. Look for candidates who want to learn how the business works and make an impact, demonstrate enthusiasm and aptitude for learning new skills, and are resilient and adaptable enough to grow with the organization, and evolve their role in response to a changing business environment. Simultaneously, offer a value proposition that encourages retention. Prioritize factors that are important to top talent, including competitive pay, the ability to contribute to meaningful work, and job flexibility.

Sustainability must be a top tech priority.

At COP27, U.N. Secretary General António Guterres stated that “we are on a highway to climate hell.” As political solutions to climate change continue to look murky, the tech industry will play a key role in addressing the global climate crisis.

IT has a huge impact on organizations’ carbon footprints. The embodied carbon of laptops, cell phones and countless other devices used across enterprises contributes significantly to enterprises’ greenhouse gas emissions. Technologies like cloud and artificial intelligence (AI) consume colossal amounts of energy, which only serves to increase as such technologies gain computing power. In fact, Gartner predicts that by 2025, without sustainable AI practices, AI will consume more energy than the human workforce.

Yet, paradoxically, it is the application of these technologies that will identify sustainable business opportunities and drive enterprise sustainability efforts. The IT circular economy is growing, as executives show interest in reducing, reusing, and recycling PCs, mobile devices and other electronic equipment. Sustainable AI practices have emerged, such as the use of specialized hardware to reduce energy consumption, energy efficient coding, transfer learning, small data techniques, federated learning and more. Hyperscale cloud service providers are leading the IT industry on environmental sustainability and running their facilities with world-class energy effectiveness and carbon-neutral operations due to growing customer demand, public reputation, investor attraction, energy costs and regulatory policies.

A recent Gartner survey found that 87% of business leaders expect to increase their organization’s investment in sustainability over the next two years. That same survey found that 86% of business leaders see sustainability as an investment which protects their organization from disruption. Additionally, 83% said sustainability activities have directly created both short- and long-term value for their organization, and 80% indicated that sustainability has helped their organization optimize and reduce costs. Sustainability investment offers a “two for one” by supporting responsible consumption while simultaneously benefiting the business. Tech can be the driving force behind these efforts.

Organizations need a new sustainable technology framework that increases the energy and material efficiency of IT services, enables enterprise sustainability through technologies like traceability, analytics, renewable energy, and AI, and deploys IT solutions to help customers achieve their own sustainability goals. Managers should lead the charge by championing technology-led sustainability solutions and practices within their teams.

Cybersecurity becomes increasingly complex in a fast-moving business environment.

Cybersecurity has become a top business priority. In a recent Gartner survey, 88% of board directors reported viewing cybersecurity as a business risk as opposed to a technology risk, demonstrating that security is part of the enterprise value chain. Within IT, cybersecurity also remains a top concern; CIOs surveyed by Gartner ranked cyber and information security as their top area of increased investment for 2023, and spending on information security is projected to see a double-digit rise next year.

Yet even as organizations increase their spending on and attention to cybersecurity, the rapid pace of business and acceleration of digitalization means that mistakes become increasingly likely. Attack surfaces are expanding as risks associated with the use of cyber-physical systems and IoT, open-source code, cloud applications, complex digital supply chains, social media, and more complicate the ability to successfully protect the enterprise. And organizations are not well prepared to manage risks from emerging technologies like AI: A Gartner survey found that 41% of organizations have previously experienced an AI privacy breach or security incident. Simultaneously, cyber threat actors are evolving to remain one step ahead. Major breaches have highlighted new and emerging attack techniques, while known threats like Log4j continue to haunt organizations months and potentially years down the line.

The key takeaway for tech leaders is that it is not possible to provide appropriate protection through brute-force spending. Rather than trying to protect against every threat, including those new and unknown, enterprises need to prioritize cyber spend that protects business outcomes. Trying to beat threat actors without a strategic approach to protection level agreements is a battle that organizations will almost certainly lose.

For managers across functions, the broader lesson is that security is everybody’s problem, not just that of IT. Security readiness is regularly impacted by business decisions that are completely unrelated to security, and few organizations recognize when this happens. Cybersecurity is a choice. Organizations get to choose their levels of protection and their investments to achieve a balance between the need to protect and the need to run the business. Managers outside of IT must understand and accept the responsibility that security is a context and consequence of decisions they make for their teams and the business every day.

Responsible investment in emerging technologies will pay dividends.

Emerging technologies have always generated hype. Within the last year, the metaverse has stood on a pedestal, touted by tech giants and startups alike as the next great disruptor. Media speculation and vendor hype has whipped enterprises into a frenzy of anticipation over this immersive digital utopia, with industry leaders like Mark Zuckerberg, Eric Schmidt, and Satya Nadella promising a complete transformation of digital experiences and unprecedented opportunities for those who get onboard. But…the metaverse does not yet exist, at least in its fully realized form.

In a recent Gartner survey, more than half of CEOs said the metaverse was very unlikely to be a key technology for the development of their business. Further, the Gartner Hype Cycle for Emerging Technologies places metaverse at an embryonic stage of development, projecting that it will take more than a decade to reach mainstream adoption. The metaverse does not stand alone in its position as a promising, but hyped, emerging technology: Web3, NFTs, superapps, generative AI, and numerous other innovations have massive potential implications for business disruption, but all are still in early stages of development. This year, we’ve seen the damage that hype can have – just look at the abrupt crash of stablecoin in April or the recent collapse and subsequent bankruptcy of crypto exchange FTX. These busts shook an already declining market and eroded trust among market participants, leaving crypto in a delicate state with an uncertain future.

Yet, the precipice of hype does not preclude emerging technologies from being worthwhile investments. During the dot-com bubble, Pets.com and others like it failed due to flawed business models, but internet commerce eventually thrived. Similarly, despite hype and market failures, today’s emerging technologies continue to move forward.

Returning to the metaverse, companies have found success with metaverse-adjacent technologies like platforms for immersive streaming, VR headsets, and haptic gloves by focusing on targeted use cases. For example, immersive environments have helped police departments train in de-escalation and crisis intervention techniques. Manufacturing organizations have experimented with projecting unintrusive process instructions into the lenses of safety glasses. While the market sorts out how to monetize public metaverse offerings, these internal metaverse-adjacent experiments are providing immediate, practical benefits to the enterprise.

These emerging technology applications work because they are targeted, researched, and — most importantly — because they offer better value than the non-digital alternative. It’s not simply an investment in technology for the novelty of it. These high-value use cases bring new business opportunities and innovation that wouldn’t be possible otherwise. Too many leaders succumb to fear of missing out (FOMO) when new tech trends emerge and demand that something — anything — using the new tech be implemented immediately. This leads to wasted investment, missed opportunity and disillusionment about the new landscape. Emerging technologies are critical and demand attention and investment, but managers must exercise patience and avoid falling victim to the hype. Responsible exploration is key.

This content was originally published here.

The post Innovating in Uncertain Times: Lessons from 2022 appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

Breakthrough innovation introduces novel paradigms and platforms, and it creates new product families and economic opportunities. But it’s never a solo act. Even the largest companies need partners.

Innovation partnerships offer many advantages. They offset R&D costs, add expertise and flexibility, and help create new markets. They can also accelerate innovation and commercialization timelines — a vitally important function, given that achieving and commercializing breakthroughs can otherwise take decades. That’s why 94% of tech industry executives consider innovation partnerships a necessary strategy.

The problem is, the majority of these collaborations fail, especially when it comes to actually making breakthroughs.

Why? There are all sorts of reasons. Companies choose partners who aren’t a good fit. They set misguided goals. They fail to communicate effectively or fail to deliver per product requirements. They resist sharing vital confidential information for fear of leaking IP. They are change-resistant or can’t navigate unanticipated circumstances. The fact is, innovation is complex and risky, and collaboration can make it riskier.

That’s certainly true for the companies that are working to create the AR/VR/metaverse experience. To achieve their goals, these companies need to make critical breakthroughs in optics, hardware, and material technologies — breakthroughs that without collaborative innovation could well take decades. The stakes are high, and to succeed these companies are going to have to get their collaborations right.

Recognizing that the metaverse can only be built through partnerships, Meta Platforms — where two of us (Andy and Taha) work, and for whom one of us (Paola) has consulted — not long ago reached out to over a dozen technology companies and proposed new kinds of collaborative relationships. These companies were not new to partnerships with Meta, but for reasons that included feasibility, financial risk, and IP allocation, most of them were declining to partner for new technology breakthroughs. Based on AR/VR applications alone, they felt the technical and business risks did not justify the investment. For example, a leading material supplier for a critical AR/VR component could not justify investing in development of new materials based on AR/VR consumer volumes. Reshaping the collaboration terms and model allowed the partner to access the broader market outside of Meta’s applications, justifying their investment.

To develop these relationships, which were designed to encourage rapid breakthrough innovations, Meta and the companies involved have had to devise new ways of fostering trust and openness, managing risk, and communicating opportunity. More specifically, they’ve have had to 1) establish complex rules for assigning ownership of IP and the right to commercialize or benefit from the results of their collaborations, 2) devise fair and effective dispute resolution systems, and 3) figure out how to allocate risk and financial burden.

This work felt difficult and risky as it was being done, but now it’s paying off: Ninety-three percent of the companies that Meta approached have now engaged in innovation partnerships; these new collaborations have led to R&D savings for Meta (as of now) of roughly $100 million and have accelerated the development and time-to-market of new materials by more than three years; and partner companies have been able to commercialize multiple products based on the same platform technology at greater speed and with lower risk.

We’ve learned a lot in this process about what makes innovation partnerships succeed. In this article we’ll present some useful guiding principles that have emerged from our work.

Rules of Engagement

Successful innovation partnerships start with trust. To sustain vendor buy-in and prevent mistrust or distraction from killing the partnership, you’ll need to design transparent, winning experiences for the vendor.

Consider what happened in the partnership that Meta established with a Fortune 500 company to develop a new material. Initially, the company was skeptical about the potential to develop the material, and Meta was reluctant to disclose significant details about the use case for it, fearing IP leakage. But it became clear that only by disclosing those details would the company feel able to engage fully as a partner. So Meta disclosed them, and the two companies were able to discuss how the hoped-for innovation would benefit both companies. Trust, openness, and transparency replaced skepticism — and before long we were on our way together to a breakthrough.

It’s important to build trust with partners not only before but also during collaborations. This helps foster long-term connections. There are many ways to do this: Engage partners across innovation processes. Make efforts to maintain your relationships with them even past the delivery of the innovation you teamed up to achieve. Share background IP, so that your partner can develop specific innovations that enable them to sell to others. Be transparent about this: It’s important to formalize how IP and commercialization benefits will be allocated.

Often, the default position in innovation partnerships is that each party owns its respective background IP and owns foreground IP that its inventors develop during the collaboration. That approach may seem reasonable, with each party benefiting from its own creativity, but it discourages the sharing of ideas and gives parties a reason to focus on sole inventorship, without regard to the needs of the eventual product.

A more practical, open, and equitable approach is to let each party’s core business function determine foreground IP ownership, independent of the background IP contribution that each party makes to the technology development. For domains where interests overlap, the party that gets to own the IP usually is the one that takes responsibility for commercializing the technology with the help of the supply chain, and the other party gets a broad and non-exclusive royalty-free license. Granting technology-specific background-IP licenses to partners is a good idea too, because it gives partners a head start that boosts their ability to innovate, reduces technical and schedule risk, and lets them and their customers address a broader market with the technologies they develop. In one of our partnerships, a material supplier was granted ownership of the IP of components that used their innovative material, and in exchange they agreed to vertically integrate and take responsibility for the supply chain for the component.

Resolving Disputes

This sort of reciprocal altruism will never eliminate all conflict, of course. So in setting the terms of their joint venture, partners should acknowledge formally that disagreements and disputes are likely to arise — and that representatives from both sides will need to resolve them together. They’ll need to design a system of dispute resolution that assumes a long-term relationship between the parties and treats both fairly. It should mandate that partners meet regularly to determine whether business objectives are being met. In the case of disputes, the resolution process should be designed and implemented in a way that won’t interfere with ongoing innovation. Its goal should be to resolve disputes at the level at which they occur, which is possible with most conflicts. Only when conflict-resolution efforts fail at that level — as occasionally happens when unexpected innovations emerge that don’t fit the IP-allocation model — should cases escalated up the resolution system. If even that doesn’t work, and resolution can’t be achieved at any level, then traditional mediators and arbitrators can be engaged.

Allocating Risk

Then there’s the matter of costs, which tend to be very high when technologies are developed and customized exclusively for one product or application. This is especially true with first-generation products or applications, where volumes are low and partners are eager to recoup their R&D investments. A collaborative, multi-use platform devoted to the development and marketing of materials, components, and devices can make them more commercially viable from their first day of production, at a scale that is likely to reduce manufacturing costs.

The default approach to allocating risk in collaborative partnerships is to make each party responsible for its own costs from the start of the engagement through production. But this approach may not provide the needed incentives for partners to commit high-caliber resources to their collaboration at a level required to tackle highly challenging technical problems.

A better approach, which Meta has adopted with its partners, is to allow all participants to take risks proportional to the potential benefits being offered to them. External partners, it turns out, are more inclined to take on technically risky development tasks if they’re given permission to use the underlying technology to meet a variety of their own needs along the way. Meta adopted this approach to the development of a tiny new optoelectronics component — a high-voltage boost converter. Instead of solely focusing on the specific boost voltage requirement for our application, the vendor was encouraged to design this component as a platform that could be configured for any boost voltage within a range with minimum changes to the design, which would make the platform suitable for multiple applications with different voltage needs.

This platform approach has many advantages. It reduces risk for the vendor. It doesn’t limit product development to one customer’s use. It prevents time-limited market advantage in the customer’s original field-of-use. It amortizes the costs of the new-technology development over multiple applications and product generations, creating conditions in which partners can undertake assignments that might otherwise be considered too risky.

In the end, it all comes down to trust. If you want to efficiently develop and commercialize breakthrough innovations, you need to collaborate with partners who will come to the table with their own interests, expectations, and concerns. To establish trust and develop a productive collaboration in this situation, you’ll need to establish clear, win-win rules of engagement and figure out how to allocate risk fairly. If you can manage that, you’ll be able to navigate the conflicts and concerns that will inevitably arise, and you’ll be able not only to sustain but also accelerate your innovation.

This content was originally published here.

The post What Makes Innovation Partnerships Succeed appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

As business scrambles to recover from the pandemic, I’ve seen one famous piece of advice doing the rounds: leaders are told to look to other industries for fresh ideas.

The classic example is Henry Ford’s invention of the assembly line, an idea he stole from the meat industry. Abbatoirs used a “dissembly line” to shunt carcasses along a steel rail from worker to worker, as each executed a specific task. Ford simply flipped the concept and revolutionized manufacturing.

Looking to other industries like this is a neat idea, but my experience as a strategy consultant to businesses over three decades tells me that it doesn’t always work. In what follows, I’ll explain the challenges to the approach— and how to overcome them.

Challenge 1: Lack of mandate

Blair is a Plant Manager for a multi-national company in the pre-mixed concrete industry. I asked him if he looked to other industries for “creative solutions” in terms of customer service or price, for instance. His answer was short and to the point: “It’s not in my job description.”

His job is to make sure that his batching plant runs efficiently, that supplies are always on tap, and that customers and staff are happy. He’s clearly industry focused and any thinking outside the box which might come from another industry is simply not on the agenda. I know from experience that it’s not on anyone else’s agenda in his company either, all the way to the top.

Challenge 2: Lack of authority

Veronica is Sales Manager for a media company. Her specific job is to sell television time to advertising agencies. She also supervises five sales representatives. When I asked her about looking outside her industry for strategy ideas her answer was clear. “It’s not in my brief to do that and, even if it was, I don’t have the authority to do anything about it.”

Veronica has a lot of exposure to other industries in her role selling advertising, and there are times when she is impressed with the strategy she sees in use. But she has no power to try them out in her own business, so her insights go unused.

Challenge 3: Lack of confidence

This concerns a fear that making any translation from one industry to another will be difficult — or worse, impossible. Health care workers are particularly prone to this, believing that their challenges are unique and that they couldn’t possibly transfer initiatives from another industry to theirs.

One of my clients, a retirement village, was having trouble with its safety record. This was impacting its insurance claims and insurance premiums directly, but it was also affecting its ability to attract and retain staff. It was following industry norms and practices so little could be learned from other industry participants. I nominated Dupont, an industrial manufacturer, from outside the retirement village’s industry as it was known as a fanatic on safety. But I was met with skepticism from staff. How is a manufacturer relevant to a retirement village?

Overcoming the Challenges

With so much to gain from looking outside your industry it’s a shame to let an opportunity slip by because of obstacles like these. Here’s how you can get past them:

Assemble an empowered team 

Lack of mandate and lack of authority are overcome by establishing an empowered team. Let’s suppose that you decide to visit three organizations outside your industry for answers. Your “Breakthrough Team” should be in the range of three to ten people made up of individuals who can make a difference when results are bought back. If the CEO is not part of the team, make sure that a direct line exists to them. You want strategic change, not strategic stalling.  Also, make sure your team zeros in on impact. For true strategy initiatives, focus on the strategic factor where you’ve hit a brick wall and which would clearly make a competitive difference if significantly improved, e.g., product quality or customer service. Remember that visiting a business in a different industry is not a fishing trip. That organization doesn’t have time to waste on an “industrial visit.” Your purpose must be clearly stated and explained. Otherwise, you’ll receive a clear “no” from the targeted company or you’ll come away with nothing of use.

Provide strong leadership

Tackle the lack of confidence issue via strong leadership. Senior doctors, Martin Elliott and Alan Goldman, at London’s Great Ormond Street Hospital for Children saw a link between their operating theaters and Ferrari’s pit crews in the racing-car industry. The specific comparison was between how pit crews changed tires and refuelled a car quickly and without error, and the handoffs for medical teams during team changeovers in complex operating cases. The leadership of Elliott, Goldman, and others was key to the project’s credibility and to the result. The ten-member team in the retirement village case included the CEO and the Director of Nursing. Leadership was there at the outset through the CEO’s involvement and was able to cut through the staff’s initial skepticism.

Prepare your sales pitch

If you intend to go down this path, think about why an organization in another industry would want to entertain a visit from a group of unknown managers like yours.

The reasons businesses say “yes,” in my experience, range from being a good corporate citizen to improving the presentation skills of staff. Others include being beneficial for staff morale in knowing that they’ve been chosen for examination by another organization. In addition, your visit will require the targeted company managers to think about what they do and how they do it — engaging them in a useful self-examination. Don’t forget that at the end of your project you’ll have something of significant value — a report. You could undertake to share a summary of that with the management of any targeted business — with names suitably disguised to protect confidentiality, of course.

Looking outside your industry for strategy improvements and breakthroughs is a good approach. The core reason why it doesn’t work more often is inertia. Doing what you’ve always done and in accordance with industry standards and expectations is far easier and more comfortable than looking into other industries. This very fact affords you a potential competitive advantage — if you dare.

This content was originally published here.

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The dilemma

The regional CEO of a large US cosmetics company has invited all the business unit leaders to brainstorm about M&A priorities and potential opportunities in the new year. Everyone knows that digital acquisitions have been a pet project for the senior-leadership team. But some business unit heads believe the company should look at other targets as well—expanding overseas, for instance, where the cosmetics market is booming, or investing in organic beauty products or a men’s grooming line. Ahead of the call, some of the business unit heads even prepare pages to support these ideas, citing links to current businesses, trend analyses, and so on. On the call itself, however, the regional CEO steers most of the conversation to digital-growth opportunities—again. Frustrated, some business unit leaders stay silent, and the brainstorming proceeds in a pro forma way, with little debate, as the group circles back to the same priorities and growth opportunities everyone has heard many times before.

How can the regional CEO convene a more productive brainstorming session?

The research

When it comes to group interactions in the workplace, individuals are particularly vulnerable to motivations to conform. ¹ 1. “Conformity,” Psychology Today, January 8, 2022. The reasons we conform are varied, but according to a five-part model developed by professors Paul Nail, Geoff MacDonald, and David Levy, they can include the need to avoid rejection and conflict, accomplish group goals, or establish one’s identity. ² 2. David A. Levy, Geoff MacDonald, and Paul R. Nail, “Proposal of a four-dimensional model of social response,” Psychological Bulletin, June 2000, Volume 126, Number 3. After all, why undercut a superior’s views or challenge an opinionated CEO if it means somehow diminishing one’s own power, influence, or authority? This risk aversion is a big factor in the success or failure of brainstorming sessions. Consider the situation at the cosmetics company. The leadership team’s desire to explore digital targets was well known in the company, and once that idea was propagated by the regional CEO, some business unit heads were deflated: to speak out against it could be viewed as a repudiation of existing priorities. Individuals’ motivations to conform created an environment in which mediocre ideas were allowed to flourish and true change was less likely to happen.

Anonymous brainstorming, along with silent voting, can serve as a counterweight to individuals’ motivations to conform and help contributors feel like their expertise and ideas are being fairly considered.

The remedy

Anonymous brainstorming, along with silent voting, can serve as a counterweight to individuals’ motivations to conform and help contributors feel like their expertise and ideas are being fairly considered. To understand how this works, let’s reconsider the brainstorming session at the cosmetics company. To ensure that all ideas are truly weighted equally, the regional CEO could appoint a facilitator to collect ideas written on pieces of paper, for instance, or submitted through a central software application. (This step would be managed ahead of the brainstorming session.) During brainstorming, ideas would not be presented in a specific order or tied to specific sources, which would free up business unit heads and other company leaders to offer proposals that may run counter to the senior-leadership team’s well-known digital stance. The facilitator could then read aloud the list of submissions, and the business unit heads could vote on them independently (and anonymously) to reveal the degree of alignment behind each idea. Once the submissions have been vetted and reprioritized, the group could repeat the silent-voting process until a clear choice can be made.

No question, this type of structured facilitation will take more time and effort than a traditional brainstorming session—but it has the potential to reveal truly original business initiatives that may not have come to light had participants’ reputations been on the line. Using a structured approach to brainstorming removes some of the risks that can thwart honest discussion.

This content was originally published here.

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Non-fungible tokens (NFTs) are going mainstream in 2022. You can now show off your favorite NFTs as your Twitter or Reddit profile picture, with Facebook and Instagram soon to follow. Driven in part by a FOMO reminiscent of the 1990s dotcom anxiety of bricks-and-mortar companies, mass-market players and luxury brands alike are launching NFT collections at a dizzying pace.

Granted, a vast majority of mainstream consumers still struggle to make sense of the 2021 NFT world of Bored Apes and CryptoPunks. And the usability of the underlying blockchain technology is still a long way from being consumer friendly.

But don’t make the mistake of thinking that NFTs are a passing fad. While the current hype cycle might be fueled by crypto-millions and Discord-obsessed Gen-Z users, NFTs could be the killer app of Web3 and its gateway into traditional commerce. The really interesting thing about NFTs is the tech they run on, which reveals their broader promise as a vehicle by which brands bypass the platform-centric marketing world of Web2 and reclaim ownership of their digital consumer relationships.

Early days: From collectibles to digital product-line extensions.

Right now, NFTs seem inextricably intertwined with digital collectibles, and many brands’ first step into the NFT waters has thus been to launch their own collections. These early efforts range from exclusive releases of Campbell’s soup can art and Coca-Cola digital apparel to generative art of burgers from White Castle.

But a first step isn’t a strategy. Successful brands didn’t call it a day after buying a domain name and posting a website in the dotcom era and, similarly, smart brands today need to be asking themselves what comes next.

The answer will present itself more readily for some brands than others, just as it did when 1990s “brick and mortar” companies sought meaningful ways to use the internet. Back then, retailers with a catalog business like Office Depot were able to start using the internet as a channel more quickly than other companies because they already had the infrastructure for taking orders and making deliveries. The ecommerce journey of bookstores like Barnes & Noble was simpler than those of apparel, furniture or grocery retailers because they sold books — easy to describe, of a convenient form factor, non-perishable, and presenting no issues of user “fit.”

There’s a similar dynamic at play in the NFT world today. Companies in the media business can naturally use NFTs to create a new class of media assets. NBA’s TopShot is currently the most compelling legacy example of this kind of product line expansion. (Media giants CNN and the Associated Press are betting, perhaps optimistically, that consumers will be as excited about buying news clips and iconic photos as they are about owning a LeBron James dunk.) Analogously, apparel companies can envisage digital versions of their physical clothing and accessories. Ralph Lauren has already been selling branded digital apparel in virtual worlds like Zepeto. Dolce & Gabana recently auctioned millions of dollars’ worth of NFT-based digital couture.

Each of these projects ports a current product line into the metaverse, expanding how consumers engage with and experience the brands. The transition is especially seamless for sneaker companies already steeped in the NFT lingo of drops and flipping. Nike has gone as far as acquiring RTFKT, a startup specializing in NFT-based digital sneakers, while Adidas has created a line of virtual gear for the characters of NFT leader Bored Ape Yacht Club.

The real promise: NFTs as the basis for a multifaceted digital consumer connection.

Extending product lines into digital worlds is just one possible use for NFTs, however. Mark Zuckerberg’s fascination with the metaverse notwithstanding, companies that bind NFT thinking exclusively to collectibles or creating digital assets for virtual avatars are missing a more important shift. Looking ahead a few years, NFTs could be the central digital touchpoint between brands and their consumers — and one that is controlled by the brand itself.

While NFTs are mostly being used for unique digital assets (a specific Bored Ape image or NBA video clip), the underlying technology could just as well identify a unique experience (the fact that you attended an event, for example) or a unique physical-world object. It’s a question of how companies use the digital identifier that forms the basis for each NFT’s assertion of uniqueness and authenticity. For instance, Nike’s 2019 CryptoKick patent connects a physical pair of shoes to an NFT-based virtual twin, setting up a future in which owners of multiple sneaker NFTs might even “breed” them into custom kicks. Today, emerging technologies like those from Veracity Protocol facilitate the creation of digital identifiers encodable into an NFT that are derived from the actual material or structural properties of the physical items in question.

Such NFT-encoded digital identifiers can chronicle a whole host of real-world purchase and consumption experiences, infusing them into our digital lives in ways that are authentic and portable across communities, and creating exciting new possibilities for brands and their consumers. Designed right, NFTs could build on the expansion of conspicuous consumption seeded by social media, allowing us to showcase our non-digital lives in our digital spaces more expansively and more authentically. Did you stand in line to buy the new iPhone on the day it was released? Attend a concert by that popular band before they were famous? Or are you simply interested in sharing your extensive brand-name wardrobe with your digital friends in a way that is natural and understated? Future virtual spaces could feature your NFTs of each of these purchases or experiences, providing presentation options tailored to your preferred level of subtlety or ostentation that transcend today’s narrow alternatives of Facebook check-ins and Reddit profile badges.

These blockchain-based tokens of authenticity could also revolutionize secondary markets for physical items. Thus far, original manufacturers have rarely captured value when their items are resold, and in these rare cases of value capture (like certified-pre-owned vehicles), the items must be expensive enough to justify the overhead of certification and sales. An NFT-based digital seal of authenticity for a physical item creates more seamless trust in peer-to-peer resale and can empower a brand to share in the associated value capture more easily using platforms like Trove and Recurate that integrate this kind of secondary trading into a branded retail experience. In fact, since NFTs are not just static digital records of authenticity, but are programmable, brands might even implement an NFT royalty standard that encodes a small fraction of value capture associated with every resale.

Brands should also consider how some things of value are unique but not scarce. Minting an NFT with each consumer transaction can create a dynamic digital point of contact specific to that transaction that can respond to a range of external events and signals. The possibilities for new and creative loyalty and after-sale engagement are endless.

Brands’ path towards an NFT future.

It’s easy to forget how long it took established companies to figure out how to navigate Web1 and make meaningful connections between the Internet channel and their existing businesses. Walmart started actively selling online only in 2000, a full 6 years after Amazon’s founding. As late as 2001, other retailing titans like Target, still struggling with e-commerce operations, chose to rely on Amazon’s storefront and fulfillment capabilities, laying the foundations for Amazon’s immense platform business.

And Web3 is developing more slowly than Web1 and Web2 as a commercial technological infrastructure, in part because of an ethos among some of the community to actively resist the centralized coordination that can accelerate that evolution. As such, the true brand possibilities of NFTs will take a few years to realize.

Nevertheless, much like in the early days of the Web, it is critical for brands to simultaneously ensure that they don’t fall behind, while also not succumbing to misguided choices that look like “checking off the NFT box.”

Start with smart digital collectibles.

It’s a safe bet that the immediate NFT mindset will remain centered around digital collectibles. During this phase, it’s important to engineer the right tradeoffs between availability and exclusivity when creating an NFT collection. For instance, the rarity of the Campbell’s and Coca-Cola NFTs may make sustaining consumer interest a challenge. On the other hand, making your NFT collection too abundant can lead to a perception of insufficient value. The desire for collectibles is mimetic — value stems from enough people wanting what others want. Striking the right balance is critical.

Exclusivity is just one lever that shapes consumer interest. Brands can also leverage the programmability of NFTs to make them more collaborative and engaging. Gap has gamified its NFTs collection by allowing multiple common NFTs to be combined into fewer limited ones. Integrating community features into an NFT collection can further enhance engagement. Social value is partly why the Bored Ape Yacht Club is sustaining greater interest levels (and valuations) than its CryptoPunks predecessor.

Tie your NFT collection to your brand and core product.

Most brands don’t aspire, long term, to remain in the business of creating and selling digital art. Connecting your NFT collection to your brand identity is essential, like Nivea has done with their non-fungible touch collection. Brand perception can also be enhanced with a novel philanthropic dimension. Budweiser’s sponsoring of 22 rising musicians via their Royalty NFTs creatively uses the capabilities of NFT technology for micro-sponsorship, allowing the brand to rise above the more prosaic philanthropy of “donating the proceeds of my NFT drop” that numerous others have already tried.

While lamenting the glacial consumerization of the underlying Web3 technology, you can nevertheless start to strengthen NFT connections with your products or services in small ways. Invert the idea of an NFT as a digital token of physical product ownership by giving away a physical product tied to a digital NFT collectible. When Coach launched an NFT collection featuring art of animals from its holiday promotions, it also promised a custom Coach bag to each NFT holder. Connect NFT issuance to participation in brand-associated experiences (events you sponsor, for example). Mint NFTs that document attendance of exclusive branded experiences like product launch events or fashion shows. Enhance an existing loyalty program with an NFT collection, like Clinique has done. 

Experiment, but with authenticity and an eye on the future.

Wading into the murky waters of Web3 will seem daunting at first. Over time, brands must figure out what works for them through trial, error and observing what succeeds and fails for others. Remember that much like with Web1 and Web2, earnest adoption and experimentation will attract greater rewards. Feigning community membership by co-opting NFT slang in social media posts can backfire by make one appear out-of-touch (so go easy on those WAGMIs), and token NFT art collection efforts will probably get you as far as your dotcom era vanity websites did.

The good news is that the true impact of NFTs will unfold gradually over the next few years, and there’s plenty of time to figure the space out. Your eventual audience is the entirety of your existing and future customers, not today’s crypto community. So don’t measure success by your NFT prices on OpenSea. Rather, orient your metrics towards those that better illuminate a future in which NFTs anchor all real-world products and experiences while extending them into the digital world of your choosing.

This content was originally published here.

The post How Your Brand Should Use NFTs appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

In an organization with smart quality, quality control and assurance are embedded in the business processes and enabled by digital technologies (see sidebar, “‘Smart quality’ at a glance”). For instance, performance management of quality metrics across the organization may be digitally enabled so that virtually every employee has quality elements specific to their role incorporated into their responsibilities and daily work.

In a smart-quality organization, everyone owns quality. But there are challenges to overcome to reach that goal. In this paper, we describe how companies can get there.

Everyone owns quality

‘Smart quality’ at a glance 

Smart quality is a framework that pharma and medtech companies can apply to redesign key quality processes and create value for the organization.

Smart quality has three explicit objectives:

The new ways in which smart quality achieves its objectives can be categorized into five building blocks.

Most managers agree that every employee is responsible for quality. But typically, only the quality organization is accountable for quality in design, development, operations, and even postmarket activities. Sometimes responsibility extends to related functions, such as manufacturing science and technology, but even then, quality is not something for which everyone is answerable.

In fact, POBOS analysis finds that integrating quality activities into the day-to-day operations of every function that touches a product or quality process has a strong correlation with quality outcomes Furthermore, quality culture being an essential building block of quality system performance, a quality-culture survey is also deployed to supplement and support an assessment of quality mindsets. Organizations that make quality every­one’s responsibility are also high performers.

Our assessment of quality outcomes and culture, based on a survey of 34 plants worldwide, shows that adopting a quality culture and capabilities is closely correlated with quality performance.

Accordingly, leading organizations are now driving cross-functional ownership of quality practices and outcomes. They are also developing quality practices and capabilities while striving to establish a culture of quality in every function. The larger goal is to drive greater ownership, participation, and execution to achieve high-quality outcomes. ² 2. David Keeling, Paul Rutten, and Vanya Telpis, “Do you have a quality culture? Perspectives on the value of creation and assessment of quality culture,” Pharma Manufacturing, October 17, 2017. 

Challenges to building a quality culture

Most organizations understand the correlation of culture and capabilities with quality outcomes. Yet many still find it difficult to build and sustain them. In part, that’s because they treat quality- and compliance-related activities as necessary burdens for functions outside the quality organization. They focus on the direct organizational costs of ensuring good quality rather than on the costs and risks associated with poor quality. Both perspec­tives are important.

Moreover, traditional operations organizations treat quality-related activities as additional noncore efforts and often seek to comply with the minimum effort. This can be seen in many capability-building efforts where training sessions are more about checking the box than truly building quality capabilities.

Areas that need improving

To explore the underlying challenges of building and sustaining a quality culture and related capabilities, we conducted a series of quality-practices surveys. Our targeted study across more than 25 plants in Asia with 30,000 or more people shows the following five common areas for improvement.

Many organizations address these issues with targeted improvement efforts. But to drive improvements in quality culture and capabilities, that is not enough, especially given the scale of change many organizations must undergo, across multiple functions and in short time frames.

In such situations, a better approach is enterprise-wide, assigning broad ownership of quality functions and initiatives to employees even beyond the quality organization while allowing quality functions to shift from policing to enabling other functions.

There are many critical areas of quality that an organization can focus on, for instance, recognizing quality practices and achievements and building problem-solving capabilities. It can also enable cross-functional collaboration in pursuit of quality excellence by, for example, assigning manufacturing and process-quality teams to ensure best practices on the shop floor.

How enterprises can embed smart-quality culture and capabilities

We call this approach pan-enterprise quality culture and capability building, a holistic approach focused on procedures rather than practices. It differs from traditional approaches in three ways:

This is a new way to build quality capabilities and shape the quality culture. It can help organizations establish new ways of working and operational models that develop and foster organization-wide quality.

The rewards of quality done right

Building a culture of quality is more than just a good idea. Organizations that have implemented smart quality across the enterprise have also achieved substantial performance improvements. Some examples include the following:

Through this transformation, the company achieved global top-quartile results on selected quality metrics such as invalid out-of-specifications (OOS), a 70 percent reduction in deviations, and a 20 percent improvement in on-time in-full delivery. It achieved all this in just nine months.

The three components of a smart-quality approach

To implement smart quality across the enterprise, successful organizations design and tailor approaches that match their unique cultures. While these approaches vary, they share three major phases.

1. Assessments of mindsets, behaviors, and capabilities

Organizations creating a quality culture typically start with a multifaceted assessment of their key practices to surface all the cultural and structural issues that pertain to quality excellence. Typically, this involves the following:

When carrying out these assessments, it’s important to surface insights at the unit level. While the overall architecture of the effort needs to be consistent across the organization, function- and unit-specific assessments are critical for customizing initiatives to address localized issues.

2. Pan-enterprise visioning

Visioning and aspiration-setting workshops can identify gaps between the desired end state and current performance levels.

Top leaders can use the results of their assessment survey and their overall company strategy to establish a pan-enterprise vision that is shared and aligned across the organization. Visioning and aspiration-setting workshops can identify gaps between the desired end state and current performance levels. Senior cross-functional leaders can ensure the effectiveness of these workshops by participating and being aspirational; it’s better to fall short of a stretch goal than overdeliver on a modest one.

Leaders can help shape the solution by focusing on the future. The effort should not be a postmortem or criticize past actions, and ideas should not be rejected because they didn’t work last time.

3. Cultural and structural quality interventions

The third step is for leaders to jointly design and deploy cultural and structural interventions to deliver against the aligned goals, keeping the following principles in mind:

Using these principles, organizations can ensure greater and faster benefits, such as the following, than with more traditional approaches:

To ensure rapid, confident deployment, teams can best design, prototype, and refine these interventions with a series of pilots—for example, at two or three manufacturing sites—before scaling them up in subsequent sprints or waves.

A pan-enterprise approach to quality, focusing on quality culture and capabilities, can power the next S-curve in quality and a step-change in the overall performance of the pharma and medical-device sector.

This content was originally published here.

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Innovation can be instrumental to the success of economies, at macro and micro scales. While investment provides powerful fuel for innovation—the relationship isn’t always straightforward.

The 2020 ranking from the World Intellectual Property Organization (WIPO) reveals just that.

The above map breaks down the most innovative countries in each World Bank income group, based on data from WIPO’s Global Innovation Index (GII), which evaluates nations across 80 innovation indicators like research and development (R&D), venture capital, and high-tech production.

While wealthier nations continue to lead global innovation, the GII also shows that middle-income countries—particularly in Asia—are making impressive strides.

Fueling Innovation

The economic and regulatory spheres within countries can have an enormous impact on their level of innovation—and vice versa, as innovation in turn becomes an economic driver, stimulating further investment.

The positive feedback loop between investment and innovation results in the success of some of the top countries in the table below, which shows the three most innovative countries in each income group.

Switzerland, Sweden, and the U.S. are the top three in the high-income group. Considering that Switzerland has the second-highest GDP per capita globally, it is not a surprise leader on this list.

Upper middle-income countries are led by China, Malaysia, and Bulgaria. Note that China far surpasses other nations in the upper-middle-income group ranking, reaching 14th spot overall in 2020. Others in the income group only appear in the overall ranking after 30th place.

Below are several income group leaders, and some of their key areas of output:

Shining a Light on Global Innovators

Since 2011, Switzerland has led the world in innovation according to this index, and the top five countries have seen few changes in recent years.

Sweden regained second place in 2019 and the U.S. moved into third—positions they maintain in 2020. The Netherlands entered the top two in 2018 and now sits at fifth.

Here’s how the overall ranking shakes out:

Nordic countries like Sweden, Denmark, and Finland continue their strong showing across innovation factors—like Knowledge Creation, Global Brand Value, Environmental Performance, and Intellectual Property Receipts—leading to their continued presence atop global innovators.

But the nations making the biggest moves in GII ranking are found in Asia.

China, Vietnam, India, and the Philippines have risen the most of all countries, with all four now in the top 50. China broke into the top 15 in 2019 and remains the only middle-income economy in the top 30.

In 2020, South Korea became the second Asian economy to enter the top 10, after Singapore. As the first Asian country to move into the global top five, Singapore joined the leaders in 2018, and now sits at 8th place.

In another first for 2020, India has now broken into the top 50.

Innovation Input & Output: The Overachievers

While annual rankings like these confirm the importance of a robust economy and innovation investment, variations in the relationship between input and output are not uncommon.

The correlation between wealth and innovation isn’t always straightforward, and neither is the connection between innovation input and output.

Below is an overview of the GII inputs and outputs, as well as several of the world’s overall leaders in each pillar.

Input variables can be characterized as factors that foster innovation—everything from the quality of a country’s university institutions to its levels of ecological sustainability.

Output factors include innovation indicators like the creation of new businesses, and even the number of Wikipedia edits made per million people.

Countries with impressive innovation outputs compared to input levels include:

Innovation Fuel Reductions Up Ahead?

Although financial markets have ignited, the economy as a whole has not fared well since lockdowns began. This begs the question of whether a steep decline in innovation capital will follow.

In response to the 2020 pandemic, will spending on R&D echo the 2009 recession and aftermath of 9/11? Will venture capital flows continue to decline more than they have since 2018?

Because innovation is so entwined with the economic growth strategies of companies and nations alike, the WIPO notes that the potential decline may not be as severe as historical trends might suggest.

No Stopping Human Innovation

Thankfully, innovation opportunities are not solely contingent on the level of capital infused during any given year. Instead, the cumulative results of continuous innovation stimuli may be enough to maintain growth, while strategic cash reserves are put to use.

What the GII ranking shows is that inputs don’t always equal outputs—and that innovative strides can be made with even modest levels of capital flow.

Get your mind blown on a daily basis:

Ever since Apple and other Big Tech companies hit a market capitalization of $1 trillion, many sectors are revving to follow suit—including the automotive industry.

What could this spell for the future of the automotive industry?

Tesla’s competitive advantage comes as a result of its dedicated emphasis on research and development (R&D). In fact, many of its rivals have admitted that Tesla’s electronics far surpass their own—a teardown revealed that its batteries and AI chips are roughly six years ahead of other industry giants such as Toyota and Volkswagen.

Here’s how a selection of car manufacturers are embracing the electric future:

The company is also well-positioned to ride the wave of a potential consumer shift towards EVs in Europe. In response to the region’s strict emissions targets, Volkswagen upped its planned sales proportions for European hybrid and EV sales from 40% to 60% by 2030.

China jumped on the electric bandwagon early. Eager to make its mark as a global leader in the emerging technology of lithium ion batteries (an essential component of any EV), the Chinese government handed out billions of dollars in subsidies—fueling the growths of domestic car manufacturers BYD and Nio alike.

BYD gained the interest and attention of its billionaire backer Warren Buffett, while Nio is China’s response to Tesla and an attempt to capture the EV market locally.

One particular factor is giving GM confidence: its new EV battery creations. They will be able to extend the range of its new EVs to 400 miles (644km) on a single charge, at a rate that rivals Tesla’s Model S.

With the combined forces and funds of a $52 billion deal, the new Dutch-based car manufacturer hopes to rival bigger brands and race even more quickly towards the electric shift.

However, there’s a noble reason behind this decision. Honda is choosing instead to focus on its commitment to become carbon neutral by 2050. To do so, it’ll be shifting its financial resources away from F1 and towards R&D into fuel cell vehicle (FCV) and battery EV (BEV) technologies.

While the car’s specs compare to Tesla’s Model Y, its engineers also drew from the iPhone and Netflix to incorporate an infotainment system and driver profiles to create a truly tech-first specimen.

The post Global Stars: The Most Innovative Countries, Ranked by Income Group appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

Simultaneously, sustainability has moved up the agenda for retail players. Again, COVID-19 accelerated this trend, with two-thirds of UK and German consumers saying it has now become even more important to them to limit the impact of climate change. Alan Jope, CEO of Unilever, emphasized that “any company that wants to stay relevant in the future should think about sustainable behavior.”

Still, questions remain on the path forward. Will the 2020s be the decade when sustainability (finally) breaks through? How should retailers combine operational excellence with social and environmental responsibility? During the Bloomberg New Economy Forum (NEF), leaders from across retail came together to share their views on the future of their industry.

Many retail players were already taking action across all three facets of ESG

Across the world, retail players are pressured to reduce their impact on the environment, with a special focus on climate change, biodiversity, and scarce resources. Fashion alone accounts for 4 percent of greenhouse gas emissions. Indeed, consumers are paying increasing attention; the founder of a fashion label said: “The upcoming generation is extraordinarily focused on making sure that waste does not exist.”

Firms are also taking action to improve their impact on society. An executive of a global consumer-goods company said that “part of being a purposeful brand is supporting the communities where we live.”

Initiatives include social-responsibility audits at factories and suppliers’ factories, and increased attention to social inclusion. “As part of our targets, we have defined racial and gender representation targets for our suppliers,” said the CEO of a US fashion house.

Executives have a responsibility as prudent caretakers of their businesses to translate this governance into investment. This is especially important as the assets under management (AUM) for environmental, social, and corporate governance (ESG) funds has doubled in the past three years. “Stakeholder capitalism is a major component of how business leaders are moving forward, and this could benefit shareholders and translate to performance,” according to Larry Fink, CEO of BlackRock.

COVID-19 has increased the urgency of pursuing sustainability in retail

Many retail players experienced a significant shift in customer preferences and expectations during the COVID-19 pandemic: 65 percent of German and UK consumers now say they will buy more high-quality items that last longer, and 64 percent of Chinese consumers will consider more environmentally friendly products. “For our first ten years, sustainability was not even in the top five reasons why customers chose our company. Now it is one of the top two reasons” said the CEO of one fashion company. “Customers want to see data on the environmental impact. Transparency is crucial.”

As we begin to turn the corner on the pandemic, many retail companies are speaking up to ensure that the global recovery is green. “Many of the technologies to realize a green recovery already exist, and now is a good time to invest in them,” said Mr. Jope. “There is already evidence to indicate that money invested in green stimulus seems to result in a better ROI.” A coalition of 150 companies, containing mostly retailers, encouraged policy makers to invest COVID-19 recovery funds in green initiatives in line with the Paris Agreement.

What companies can do

Retail companies can also take specific actions focused on their existing capabilities. Within a changing environment, NEF delegates shared best practices and highlighted a number of considerations for firms to make true progress as they emerge from the crisis.

Put sustainability at the heart of the organization. NEF delegates highlighted that sustainability can be aligned quite well with retail players’ strategic and operational goals—reducing wasted packaging also reduces costs, for example. “Increasing sustainability requires a rethink of your inventory management, from waste and marked-down products to packaging and fulfillment,” according to a fashion start-up CEO. “You need to think about your operation in its entirety. How does your product get to the customer?”

In addition to being good business, these efforts can increase supply-chain resilience. Many firms are hesitant to transition to sustainable alternatives out of fear of compromising on quality or damaging the company’s brand. The first step is therefore often to educate employees and start a trial. “Once we designed a first product (from recycled materials), people started asking what other pieces of clothing we could produce from recycled materials,” said a fashion CEO. Indeed, making sure the organization can implement the principles of the circular economy (reduce, reuse, refurbish, repair, and recycle) will be key to realizing change.

Making sure the organization can implement the principles of the circular economy (reduce, reuse, refurbish, repair, and recycle) will be key to realizing change.

Offer customers a choice. Customers are demanding to be part of the sustainability conversation, and they are increasingly using their wallets to make their voices heard. Retail players should offer customers the option to choose sustainability. For example, a US retailer is “offering our customers the option to choose ‘eco-light’ packaging. While not looking quite as beautiful, it is better for the planet,” and many customers are choosing it.

As another example, a fashion player launched a sister brand for slightly damaged clothing, targeting customers who might be willing to sew up their clothes a little, thereby making them more uniquely their own and reducing waste. Another player quantified the environmental impact of its offerings across production and delivery, thereby supporting customers’ choices across products and delivery modes. “Making choices should be easy, and customers should be informed,” is the philosophy of the company’s founder.

Set targets and ensure progress is real. Many leading consumer companies are setting aspirational goals. Alan Jope noted Unilever’s commitment that “by 2030, 100 percent of carbon for our entire home-care business will come from renewable sources.” However, it is crucial that these are translated into concrete midterm steps. “While we made the goal of using 100 percent recycled plastics by 2030,” shared a consumer goods CEO, “we started with eliminating plastics or using sugar-cane-based plastics in a few of our product lines. This was important to show that we could do this.”

Consumers are also demanding concrete, demonstrable, and quantifiable actions to achieve these goals. So-called “greenwashing” risks causing a public backlash, as demonstrated by the “Pull Up or Shut Up” movement on social media. ¹ 1. The Pull Up or Shut Up movement demanded real actions to improve inclusiveness of fashion players, to back up their PR statements such as the “blacking out” of social media accounts in support of racial equality. “Authenticity is important, but customers are increasingly expecting that [fashion brands’] efforts are backed up by data,” according to Clarisse Magnin, a McKinsey senior partner.

Collaborate with others, especially the broader supply chain. “We all know that the industry is not moving at the speed and scale needed to have the impact the climate and our societies demand,” said the CEO of a responsible business alliance. “The only way we can scale up our efforts is by reaching out outside our own organization.”

While it’s the responsibility of retail players, first of all, to set an example at their own companies, a fashion CEO noticed that “for us things changed when we realized that we could affect change far beyond our walls.” Retail players should therefore act in concert with one another and also focus on supply chains: some suppliers—who have only limited exposure to customers demanding responsible conduct—might be reluctant to shift their practices without prodding.

Use industry metrics and standards. “It is not always clear what net zero means,” said Scott Minerd, cofounder of Guggenheim partners. Dr. Leila Fourie, CEO of the Johannesburg Stock Exchange, concurred: “Net zero is still subjective, with eight out of ten ESG funds still investing in oil, gas, and carbon-emission-type industries.” Some retailers pulled out of the fair trade alliance to launch their own certification, with now more than 460 sustainability logos in existence. This causes unnecessary confusion for consumers. Therefore, firms should use industry-standard objectives (for example, Sustainable Development Goals), measurement techniques (for example, the Higg Index for fashion), and certification (for example, B Corp Certification for responsible businesses).

Prices still matter. An executive at a car distribution company noted that the biggest pushback to buying electric cars is still price: “Everyone says ‘sure this looks great,’ but few customers buy electric cars. It has been a real struggle for us.” While the impact of pricing differs by industry and by purchase value, retail players need to ensure that sustainable products are not just “add-ons” to the product line. They need to ensure that pricing of sustainable options is in line with other options, or that these products provide distinct benefits.

From setting ambitious targets to creating industry coalitions, the leaders in sustainable retail are taking actions that could make retail more environmentally friendly, socially caring, and economically responsible. It is now important that these retail leaders, many of them represented at the Bloomberg New Economy Forum, work to bring the rest of the industry along.

As mentioned by the CEO of a responsible business alliance, “I am not worried about our direction; we are definitely on the right track. What worries me is the speed.” Partners across the industry need to work together with government, customers, and suppliers to define standards, change operations, and create new products. As the world emerges from a pandemic, retail should lead the way.

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