Why Developed Countries are Struggling to Channel Capital into Meaningful Innovation

One of the world’s leading experts in the economics of innovation suggested Tuesday that Atlantic Canada should collaborate with new organizations to increase its access to capital and talent and improve the performance of its innovative industries.

In the keynote address at the Big Data Congress in Saint John, Harvard University Professor Clayton Christensen explained to more than 700 delegates why developed economies are having trouble channeling capital into meaningful innovation.

His 90-minute speech strayed from the conference’s central theme of using big data to revitalize businesses and organizations. Yet he suggested ways that Atlantic Canadians could improve the adoption of innovation and the performance of innovative companies – including data companies.

For example, he said Tata Consultation Services of India has developed a six-month program that can convert even mediocre engineering students into technical employees needed by the country’s booming tech industries. The consultancy, which has international reach and is growing by 25 percent per year, has shown success as well in converting mature, unemployed blue-collar workers in such places as Detroit into employable workers in the technology field.

“If I were you, I’d call these guys and see if they could set up their systems here,” said Christensen, who’s served as a director to the consultancy for eight years. “The opportunity for Big Data would be greater if there were that sort of engine to produce this type of worker.”

Christensen is widely credited with developing the concept of disruptive technology, and witnessing him speak on the matter is a memorable experience. Standing six-foot-eight, the 63-year-old professor appears in a charcoal pinstriped suit, white cuff-linked shirt, blue tie. He’s a devout Mormon, and his diction is sprinkled with references to the church or religious history. He spoke softly and slowly, always with a simple vocabulary, and the packed audience was silent throughout, except when reacting with laughter to his dry wit.

The speech dwelt on the mechanics of innovation and disruptive technology, and the process by which new technologies are adopted by the broad market. The reason the U.S. economy is now in desperate straits, he said, is capital is being channeled into “efficiency innovation” rather than radically new products. In other words, corporations are working on making existing products cheaper rather than creating new products, and cheaper products don’t really create bona fide economic growth.

He blames this process on the wholesale adoption of a set of financial metrics that reward short-term corporate gains, such as return on capital employed, internal rate of return or earnings per share growth. By clinging to these metrics, managers today are looking for quick or easy returns rather than developing revolutionary products.

“What it means is it [modern industry] is stuck unless someone – maybe you guys – can be a modern-day Martin Luther and nail your thesis to the church doors saying we need a new measurement for success,” he said.

In the startup sphere, he took issue with the prevailing pursuit of exits. He said many worthwhile entrepreneurial pursuits don’t result in products or technology that can be purchased by a larger company. Yet startups in such fields can’t find financing because investors don’t perceive an exit strategy.

Christensen suggested Atlantic Canadians consider new financial groups like Royalty Capital of Boston, which essentially licenses its capital to ventures, receiving a royalty until it makes a certain return on its money.

The Big Data Congress continues today with its Student Superpower Challenge, in which about 900 students learn about entrepreneurship and begin a startup competition.

This article was originally published on Entrevestor.

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