ADOPTING STRATEGIC OPPORTUNITIES THAT FIT EVOLUTIONARY PATTERNS

Step One in Restoring the Innovative Edge

ONE OF THE greatest challenges for academics is to develop an evolutionary theory about how science and technology are evolving, the topic of this chapter. Perhaps the biggest obstacle to restoring the United States' innovative edge is the tendency for business managers and policy makers to maintain the current strategies despite the many societal and global changes around them. If they change strategies, usually little consideration is given to how the world is changing and, more particularly, in what direction. Paradoxically, this lack of perspective is especially true of the many books and reports on the innovation crisis, which one would assume would have a view of evolutionary patterns. Most of them do report the growth in RDT expenditures and the globalization of competition, but in some respects these are not the most important evolutionary patterns for the purposes of shaping business strategies and federal and state government policies. All that these patterns do is indicate the spread of competition about innovation throughout the world.

Being successful and getting ahead of the innovation curve means having some information about several other evolutionary patterns. But this requirement raises a real doubt: Is it possible to predict the future? The answer is a qualified yes, meaning within general guidelines about evolutionary directions. I do not believe very much in what might be called technological forecasting that makes specific predictions that we will develop fusion energy or a cure for cancer or a substitute for copper within a certain time period. But I do believe that one can observe evolutionary patterns, and, if they can be explained, one can then select strategies that complement these patterns. These allow CEOs and policy makers to anticipate future directions of changes in tastes and also likely obstacles in being able to produce radical innovations.

The following six evolutionary patterns, or trends, are observable:

1. Growth in global research expenditures and therefore in the number of radical innovations

2. Globalization in the development of radical innovations

3. Differentiation in consumer tastes

4. Changes in the way in which radical innovations are produced

5. Expansion in the number of noneconomic concerns

6. Emergence of a new stage of manufacturing

The pace of these changes varies in each of the sectors, both high-tech and others, as we can see by simply looking at the differences in the amount of money invested in RDT within each sector (see NSF.gov/statistics).

Recognizing these evolutionary patterns provides some additional information for policy makers in the debate about "picking winners." Just as technological forecasting is suspect until proven wrong, federal government RDT investments in specific firms (except in those few industrial sectors where there are only one or two firms; see Chapter 6) could indeed be risky. But recognizing evolutionary patterns and facilitating all the firms in a particular sector avoids the pitfall of picking specific winners. And while it may seem that investing in particular sectors is another variation on the theme of "picking winners," it is not because the high-tech sectors are clearly visible globally. Or to put it in other terms, most countries appear to have the same list of high-tech sectors where RDT expenditures are growing, with nanoscience and nanotechnology at the top of this list. More fundamentally, government support of these evolutionary patterns would allow American firms to compete on a more even playing field with the European and Asian firms (see Chapter 6).

The first two patterns, the explosive growth in RDT expenditures and radical innovations and their globalization, mean that not only many more radical product and process innovations are launched on an annual basis but that increasingly they are coming from overseas. The rates of growth are uneven across countries and especially within sectors, but the decade averages in real terms and as a proportion of the nation's GDP are relentlessly increasing. Between 1984 and 2004, the expenditures of the United States almost doubled, going from $152 billion in constant dollars to $286 billion, while Japan's did double, moving from $53 billion to $105 billion. Just taking the last eleven years, the global expenditure has doubled (see Figure 1.1). At the same time, the number of countries involved in research is also expanding to include South Korea, Brazil, New Zealand, and of course China and India (see Figure 1.2).

Perhaps more revealing is the fundamental alternation in the relative importance of RDT investments as measured by the percentage of GDP allocated to research (see Figure 1.2). The percentage of GDP allocated to RDT expenditures over time has remained largely stable in the European Union and the United States despite the desires to raise it to 3 percent. For the United States, the percentage is 2.62, and for the Organisation for Economic Co-operation and Development (OECD), it is 2.25. The European Union set 3 percent as a goal in the Lisbon Accords, and recently the Obama administration also chose this figure as a goal. But given the current economic crisis, it is unlikely the United States or the European Union will reach these goals by the dates that they have set. Thus the growth in other countries becomes more ominous for the competitive position of the United States. As can be seen, several of the Asian countries, most notably Japan, South Korea, and China, have steadily increased their expenditures as a percentage of their GDP. Japan is now at 3.3 percent, Korea is at 2.96 percent, and Taiwan is at 2.46 percent. Not shown within the European Union, the figures for Sweden (3.89 percent) and Finland (3.48 percent) are also relatively high, and one might add that these countries are doing comparatively well in international competition. The highest expenditure is in one of the smallest countries, Israel, at 4.49 percent, and that is probably an underestimate. Together these two evolutionary trends mean that not only is the amount of investment in research in the high-tech sectors rising, but research is becoming more relevant even in the medium-tech sectors. One of...