Thursday, March 06, 2014

Innovation is a double-edged Sword

I listened recently to an NPR story with some fascination, for what it should tell all of us about the possibilities and perils of innovation.  The story was from the Oscars, and noted that while many of the movies and other content we watch are loaded with special effects, many of these jobs are migrating to other countries.  As the story notes, the digital effects industry was basically founded in LA by Spielberg and others, and has rapidly transformed the film industry.  Movies like Gravity are today mostly just special effects - there are scenes in Gravity where the only "real" feature is Clooney or Bullock's face.

What's instructive about the story is that our country and the film industry in Hollywood innovated a completely new digital experience, creating tools and methods to bring exceptionally realistic effects to the screen.  Further, we've congratulated ourselves on the fact that we can continue to innovate in creating content and media, even if we can't compete in manufacturing.  The US will still be a content and intellectual property hub, we've assured ourselves.

Except that may be slipping through our fingers.  What we forgot to remind ourselves of is that once a capability has been reduced to a toolset and methods that can be taught, the work will begin to migrate to locations and people who will do the equivalent work for less money.  While we did innovate the tools and methods, we can't protect those tools and methods from being used in places where labor costs are lower while the learning capacity and ability to execute is roughly the same.  This is why many digital effects jobs are migrating - first to Canada and New Zealand, but eventually to places like Ukraine, India, China and others.

Dan Pink talked about this phenomenon in his book A Whole New Mind.  If it can be documented, automated and taught to others, it will eventually seek the least cost production methods.  Hollywood is rightly upset about special tax incentives that countries like Canada are creating, but they won't last, because this work will continue to flow to places where the labor costs are low.  Because we didn't just invent digital effects, but we are constantly innovating the tools and methods, and while those innovations are improving the quality of the effects, they often make learning the tools even easier. 

Based on this analysis, it would seem we have a couple of options.  First, once we innovate to create a new capability, we can attempt to "lock it up" so that no other country or region can learn our secrets and undercut our pricing.    When England reigned as the supreme manufacturer of cloth in the 17th and 18th century, there were laws in place to forbid the export of looms, and people with experience building and maintaining looms were not allowed to emigrate.  However, in this day and age information, tools and methodologies traverse national boundaries very quickly.  There's a huge trade in illicit corporate and technology secrets.  We certainly can't hope to "lock up" our tools and knowledge forever.

Second, we can focus on where innovation is more sustainable.  We know the tools can be learned, but can others innovate the tools and methods as quickly as we can?  I doubt it.  Experience going into the tools will matter, so we have a headstart and can keep it, but only if we have access to those using the tools.  We can't afford to become an ivory tower, exporting tools and methods that aren't used locally, where we lack feedback.

Third, we can become the country that constantly invents new things, and use innovation as a driver to continually reinvent products, services and business models.  This is what is most likely in store for future US generations - a future of constant innovation and change - if we hope to continue to improve our standard of living.  The idea of large employers paying thousands of people to make things in the US is increasingly unreasonable due to higher payroll and benefits costs.  That work has migrated already.  Even many higher order functions, like accounting and digital effects, are moving overseas.  Jobs we never thought could be outsourced are increasingly being done in other places, and yes, innovation is building the concepts and delivering the tools to do those things.

Innovation is a double edged sword - it helps those who use it first, but if those initial pioneers plan to stand on that initial innovation for very long, they'll find the sword swings back and both edges are sharp.  

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posted by Jeffrey Phillips at 7:54 AM


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