"Whenever I go into a restaurant, I order both a chicken and an egg to see which comes first"

Tuesday, April 24, 2012

Competition vs. Innovation

We live in a culture that nurtures competitive skills. And they are necessary: discipline, rigor and reliability. But it’s probably a good idea to try to supplement them with the skills of the creative monopolist: alertness, independence and the ability to reclaim forgotten traditions.

David Brooks has written an interesting article in today’s (4.24.12) New York Times about the difference between competition and innovation; or more accurately, how a competitive environment, far from stimulating innovation, discourages it.  http://www.nytimes.com/2012/04/24/opinion/brooks-the-creative-monopoly.html?_r=1&ref=opinion He cites the example of Peter Thiel who initially went the competitive route, moving quickly and easily up the legal ladder from one competitive institution to another.  Only when he hit his first and only brick wall – he was refused a Supreme Court judgeship, did he reflect and go back to his initial, creative Stanford roots.  He founded PayPal.

The argument about competition trumping innovation makes immediate sense – once you are in a commercially competitive environment, whether your own start-up or working within a larger firm, you tend to become focused on the incremental changes that will keep you just ahead of the competition, increasing market share by fractions.  You lose the desire or motivation to think within a revolutionary world of big ideas.

One of his core points [Peter Thiel, the subject of the article] is that we tend to confuse capitalism with competition. We tend to think that whoever competes best comes out ahead. In the race to be more competitive, we sometimes confuse what is hard with what is valuable. The intensity of competition becomes a proxy for value.

In fact, Thiel argues, we often shouldn’t seek to be really good competitors. We should seek to be really good monopolists. Instead of being slightly better than everybody else in a crowded and established field, it’s often more valuable to create a new market and totally dominate it. The profit margins are much bigger, and the value to society is often bigger, too.

I have written a post recently on how innovation recedes once creative people enter big business (Innovation – Why Facebook Had To Pay $1b For Instagram).  In it I argued that the creative people emerging from Stanford or MIT with a great idea quickly get co-opted by big business.  In the case cited, Instagram got bought up by Facebook; but as the Brooks article illustrates, even if Instagram had remained small and independent, the innovative ideas that they brought with them from the insulated rarified air environment of academia, would soon dissipate and get transformed into much smaller, less creative but more financially rewarding increments.

Thiel expands on his theory:

Think about the traits that creative people possess. Creative people don’t follow the crowds; they seek out the blank spots on the map. Creative people wander through faraway and forgotten traditions and then integrate marginal perspectives back to the mainstream. Instead of being fastest around the tracks everybody knows, creative people move adaptively through wildernesses nobody knows.

Now think about the competitive environment that confronts the most fortunate people today and how it undermines those mind-sets.

First, students have to jump through ever-more demanding, pre-assigned academic hoops. Instead of developing a passion for one subject, they’re rewarded for becoming professional students, getting great grades across all subjects, regardless of their intrinsic interests. Instead of wandering across strange domains, they have to prudentially apportion their time, making productive use of each hour.

Then they move into a ranking system in which the most competitive college, program and employment opportunity is deemed to be the best. There is a status funnel pointing to the most competitive colleges and banks and companies, regardless of their appropriateness.

Brooks sees the inevitable move of these talented students to competitive big business like the move of idealistic social reformers who go into politics – the same need to think down and small, incremental changes required by competition and market share: 

[Students] move into businesses in which the main point is to beat the competition, in which the competitive juices take control and gradually obliterate other goals. I [Brooks] see this in politics all the time. Candidates enter politics wanting to be authentic and change things. But once the candidates enter the campaign, they stop focusing on how to be change-agents. They and their staff spend all their time focusing on beating the other guy. They hone the skills of one-upsmanship. They get engulfed in a tit-for-tat competition to win the news cycle. Instead of being new and authentic, they become artificial mirror opposites of their opponents. Instead of providing the value voters want — change — they become canned tacticians, hoping to eke out a slight win over the other side.

Competition has trumped value-creation. In this and other ways, the competitive arena undermines innovation.

Neither Brooks nor Thiel have any answers, but conclude:

We live in a culture that nurtures competitive skills. And they are necessary: discipline, rigor and reliability. But it’s probably a good idea to try to supplement them with the skills of the creative monopolist: alertness, independence and the ability to reclaim forgotten traditions.

Everybody worries about American competitiveness. That may be the wrong problem. The future of the country will probably be determined by how well Americans can succeed at being monopolists.

This is a tall order.  The clash of cultures – thinking big and creatively, focusing on revolutionary inventions and taking big risks vs. thinking incrementally – is unlikely to be resolved.  At the same time, visionaries do come along and not that infrequently.  Bill Gates, Steve Jobs, Sergei Brin and Larry Page, and Mark Zuckerberg are products of our current generation.  The personal computer, easy access to the Internet, powerful search engines, and social networking were revolutionary ideas; and while Microsoft, Apple, Google, and Facebook are now focused on predictable incremental changes, they all began with the pure, creative, innovative idea of their founders.  All of them developed their ideas ‘in cramped garages’ or in the labs of graduate school.  Each had a vision, a passion, superior intelligence, and a powerful desire to succeed.

The conclusion is not that large corporations can be reformed to become innovative laboratories – even Google’s famed secret research facilities are focused on the incremental changes that will make their search engine progressively more powerful – but that creative geniuses will always out if they have the right environment in which to develop their ideas; and that environment begins in kindergarten.

The current primary and secondary education systems do not favor creativity, innovation, or risk-taking; and favor the least-advantaged over the most promising.  Many public universities have become diploma mills, lowering standards to promote diversity, and tightening their academic offerings because of limited taxpayer funding.  Only fundamental structural reform can begin to reorient education to encourage what has always been America’s long suit – innovation. In order to turn out a slew of the likes of Bill Gates, Steve Jobs, and Sergei Brin, the way we educate those promising students must radically change.

The elite institutions which have provided the intellectual environment in which these innovative geniuses have flourished – Harvard, MIT, Stanford (which seems a particularly rich breeding ground for innovation) – are national treasures and should be the model for educational reform as should the few public universities like Berkeley which approximate the intellect- and intelligence-rich student bodies of the best private schools.

In America, perhaps especially during an election year, charges of elitism abound; and yet it is from those elite institutions of learning that the best and the brightest emerge.  There is something sniffy in our reaction to the overwhelming number of Ivy League graduates in the White House; and yet the mission of these institutions is not to teach learning but thinking.  I recently had a look at the Harvard ‘Red Book’ published for each class before decade reunions.  It is not only remarkable to see the impressive career paths of most students, it is their risk-taking and innovation.  The number of career changes was significant.  These students were confident enough of their abilities and had been trained to think large, that such changes, intimidating to some, were completely reasonable.

America will always be a creative, innovative nation; but there is no better time than now to rethink our institutions and to reorient them towards the future.  The renewed culture of individualism is not the anti-progressive phenomenon pilloried by the Left.  On the contrary not only is it the promise of the future, it is the future.  The relationship between the individual and the state, business, religion, education, and politics is changing dramatically as responsibility and accountability are shifted from corporate structures to the individual.  It is time to value the individual in a more complete and comprehensive way, and move from the simplistic and conventional view of freedom, liberty, and independence to a more comprehensive and nuanced one which sees the individual as a productive economic unit.

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