Thursday, February 26, 2009

Bhide's Entrepreneurs

A neat book by Amar Bhide called The Venturesome Economy is about innovation quite different than that of the classic view given by Joseph Schumpeter. It's an important argument, well worth reading, because if he's right, we need fewer engineers, and more B-Schoolers.

Bhide emphasizes not the courage or genius of the entrepreneur, but rather the unintended effects of all the various forms of knowledge generated by the massively multiplayer innovation game that sustains economic growth. These mid level innovations do not show up in patent counts, and individually they are small steps, but they add up, especially because there is so much unsung innovation across the American economy. Bhide emphasizes the mundane innovations from many people making prosaic modifications to the status quo. Think of Wal-Mart's innovations in logistics, Apple's in design, or Proctor & Gamble in marketing. Hardly something to get excited about, but these are the engine for prosperity. He also highlights the importance of consumers taking risks when they buy, say, a new computer or software, as these risks have similar return characteristics as investments, and are essential for generating feedback to the producers. Innovation guru Joseph Schumpeter, in contrast, emphasized the entrepreneur (think Henry Ford), making it seem that we need to incent Unternehmergeist (entrepreneur-spirit) for specific technologies or companies.

Innovation is not so much from trade secrets that are regionally clustered, or deep ideas like the transistors, but rather from the willingness and ability of people to develop these ideas and technologies into products. Apple's successful iPod mainly came from technology outside the US as opposed to anything local in Silicon Valley, and was based on their great marketing and design expertise. Thus, maybe all those arrogant MBA's, who couldn't take the derivative of x2 if they had access to their college math texts, and got B's for showing up, are really the key to our economy? Clearly, if true, the first implication is there is no God.

Emphasis is everything and if the Bhide interpretation is correct, Schumpeter's books seem much less important. Schumpter emphasizes brilliance, great men and great companies, whereas Bhide emphasizes the effect of a system where outliers are not so important.

Unfortunately, Bhide does not highlight exactly what kinds of policies, laws, morals, etc., are necessary or sufficient to generate a robust amount of mid level and consumer entrepreneurship. Thus, he does a nice job of convincing us that this is where the key to productivity lies, but is rather vague of why it occurs more in some places than others. For example, he suggests emphasizing the service sector more, in contrast to technologies, noting that Wal-Mart type productivity is one of the US's true strengths. But when he discusses this application to US health care, he seems without a clue as to why the innovative and productive US service sector fails so massively in that one area. It's a bit like a great book on psychology where at the end, the author suggests we watch more sunsets or look into our heart, advice that is boring or useless. True wisdom should lead to better practices, not merely a good read.


Michael F. Martin said...

Sounds like a good perspective, but I'm not sure it's mutually exclusive with Schumpeter or that it suggests that we need more MBAs and less engineers.

If I understand it right, he's basically explaining the organizational conditions necessary to a firm's achievement of compounded growth. Those conditions may be necessary but not sufficient. Perhaps it takes both a pioneering product or service idea (Schumpter) and the steady discipline he's describing to see the big gains. If so, it would be a mistake to discount either.

I see affinities between the view he seems to be presenting and the view of lean design and manufacturing theory. The emphasis in lean is on feedback loops that lead to development of human capital, with particular products or services being a proximate rather than ultimate goal for the organization.

The challenge for folks like Bhide is to identify useful metrics that managers can use to track these sorts of things. Otherwise the capabilities disappear with the managers who have an instinct for them.

Michael F. Martin said...

Also he's repeating many points that Peter Drucker was fond of making about the value of incremental improvements relative to "big ideas."