Time to fire up the cauldrons of creativity

First published in the Financial Times on 27th March 2012.

The era of research and development innovation appears to be fading

The most desirable quality for any business is to be thought of as innovative. Achieving such status is hard: the majority of big western companies were founded decades ago, and generally rely on legacy products and brands. Yet we all realise that to create jobs and wealth we must generate valuable new intellectual property.

Once, innovation was delivered by leading research and development facilities. But the era of such central laboratories appears to be fading. The closure of Pfizer’s massive campus at Sandwich in the south of England is the latest example of how pharmaceutical companies are outsourcing and dispersing their drug discovery efforts. Many other industries are taking a similar path.

Perhaps the greatest R&D hub was Bell Labs, started in 1925. Here it pioneered the transistor, lasers, satellites and cellular telephony. It was industrial invention on a magnificent scale, and is celebrated in a new book called The Idea Factory, by Jon Gertner. Bell Labs’ success owed much to the fact it was owned by AT&T, the monopoly phone company, which could afford to fund it prodigiously and tolerate failures. But it also worked because it was an organisation with a team spirit, staffed by interdisciplinary scientists.

The only comparable entity is Xerox Parc, founded in 1970 in Palo Alto. Its location in Silicon Valley reflected how the centre for US technology innovation had shifted from east to west coasts in the intervening 45 years. It has been responsible for laser printers, the Ethernet and fibre optics, among other breakthroughs. It too enjoyed the largesse of a parent with a near monopoly – in photocopiers.

Technological advances and globalisation have had a compounding effect on progress. While giant breakthroughs are rarer, the pace of change in many consumer markets has accelerated. Long-term research horizons are harder to justify for commercial enterprises. Thus, Sharp, Panasonic and Sony, three pillars of the Japanese electronics sector, are fighting the rise of Samsung, Apple and many Chinese companies. They are expected to lose a combined $17bn this financial year. Not long ago such companies were world-beaters at novel devices, ranging from the Walkman to the first camera phone.

Corporations tend to suffer from inertia. Their structures and cultures are always hard to reform. Meanwhile, greater scrutiny and accountability of public companies gives them less permission to experiment – and possibly lets them be seen to “waste” resources. Executives all claim they embrace innovation but, in the 21st century, the price of failure within a hierarchy can be too personally expensive. Moreover, why fund research that might make your current products obsolete? Hence few managers are willing to take big risks, so they play it safe instead – and the business gradually ossifies.

The emergence of venture capital had an impact on the invention process. Previously, scientists worked as life-long employees within institutions that automatically owned their brainwaves. But thanks to characters such as General Georges Doriot at ARD, readily investing finance for new ideas, researchers could become entrepreneurs and get rich – Bill Hewlett and David Packard, and Ken Olsen, founder of Digital Equipment Corporation, being prime examples.

More recently, dozens of innovation hubs have sprung up to accelerate technology start-ups.

There has also been a revival of cash prizes for useful inventions. Perhaps the best known is the X Prize Foundation, chaired by Peter Diamandis. He has just co-authored Abundance – The Future is Better than You Think. This optimistic book suggests that improvements in robotics, 3D printing, nano materials, artificial intelligence, synthetic biology and many other technologies will transform our lives.

The state remains the prime funder of pure research in most countries, but even that is threatened by cuts in government spending across the west. And while individual entrepreneurs such as James Dyson of vacuum cleaner fame, Sara Blakely of Spanx or Mark Pincus of Zynga can build highly profitable and original undertakings, their innovations do not compare with the extraordinary leaps that poured forth from those cauldrons of creativity, Bell Labs and Xerox Parc.