Innovate, Adapt, or Die

Innovation“Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you lead them, and how much you get it.

This quotation from S. Jobs was floating through my mind as I perused the enjoyable read of the recently published “Adventures in Innovation: Inside the Rise and Fall of Nortel” by John Tyson. The book is a fascinating personal account by one of the key R&D executives who has been there for most of the ride since 1966 until 2001, almost the end. There are many facets to his story but at the heart of it is one of universal interest to anyone in the high-tech community: the eternal tension between creativity and innovation on one hand, and the need to maximize revenue and profits.

It does not matter whether you are a start-up or a billion dollar company. All for-profit organizations powered by innovation experience this built-in tension. There is nothing wrong with it, quite the opposite. Its existence is healthy and helps to right the ship as it sails through turbulent waters of the forever changing business seas – as long as it is constructive, kept in balance and supported by the trust and mutual respect of the members of the crew.

This tension, between, as Tyson calls it, “pinstriped executives driving sales and white-coated lab engineers pursuing ideas for products a decade away”, is not difficult to maintain in balance as long as both camps talk to each other and the top leadership listens. But it is easy to stop listening as sales grow through the roof, the stock price is exploding and you are in the midst of a wild binge of acquisitions and hiring waves.

Putting R&D spending under the control of the operating businesses focused on immediate products and profits carries a huge risk that research will become just another cost, rather than an investment in the future. In the battle between the operating, money-making arm of the organization and the R&D operation, the scales are tipped towards the former. At the end it will win this unless there is a strong structural protective cocoon around R&D and the enlightened top leadership which does not waiver. Arguably, Nortel collapsed because the conversation stopped  between the two camps.

In one of his recalled stories, Tyson asks Scrivener, Nortel’s CEO at the time, about managing business strategy and tactics. It is instructive, that as CEO he owned the strategy and the vision, and considered the operating and marketing plans to be tactical. Consequently he advised aspiring executives to learn to manage the strategy and delegate the tactics. Even more memorable, when asked for his planning horizon, he answered: “10 years.”

Now, this is truly mind-boggling stuff in today’s business environment when very few business leaders have the guts to think that way without quickly giving up to the pressures of short-term expediency. In terms of planning with 10 years horizons, well…, possibly, just possibly the Politburo of China might be able to afford it 🙂 And yet, one feels this inner itch, a tiny voice whispering that he was right and that’s the way to do it…

When a CEO loses it and falls prey to the short-term expediency rather than viewing R&D as long-term investment, that delicate tension balance will break-down and the internal fighting will start over marketing as an expense versus an investment. This leads to a waste of a lot of money, resources, and time. Ultimately, the collapse will be in sight.

Under these circumstances, there is only one more potential saviour: the enlightened, competent Board of Directors which takes seriously its fundamental responsibility to proactively set the strategic direction of the company. However, if the Board allows itself to become too remote from the corporate culture, shielded by executives who consider the directors a necessary evil, it will turn itself into ineffective caretakers as in Nortel’s case towards the end when “Board members were little more than well-meaning, part-time sophisticated  contractors who were well compensated to meet the minimal legal requirements.”

There are many valuable lessons from Nortel’s story – the biggest tragedy in Canadian high-tech – which are worth pondering to help other tech organizations, Blackberry and re-modeled NRC come to mind, avoid snatching defeat from the jaws of victory. After all, “Those who do not learn from history are doomed to repeat it.”

Impressed by Matthews and his Tech Lobbying Efforts

Canadian high-tech has always struck me as politically naïve and immature. Perhaps it is due to the nature of engineering work requiring a bit of an introvert personality, focused on hard data and attention to details in a narrow technical field. It could be that the mantra “If you build it, they will come”, the ethos of “Building a better mousetrap”, the frontier-like spirit of fierce independence and self-reliability, all by themselves admirable characteristics,  make it a bit short-sighted if not isolationist when it comes to the realization that their industry is not an island and it makes sense to pay attention to a broader world around advocating, advancing, and protecting its interests in the larger society.

 Whatever the reasons, the fact is that the tech community or so-called knowledge workers in Canada do not have a formidable political lobby  of the likes of the infamous Maritime fishermen, automotive unions, or the Prairie farmers. Arguably, organizations such as CATA or ITAC are supposed to provide the industry representation and advocacy, but the overall sense is that they are only partially effective.  As a result, not only is the country’s knowledge economy, competitiveness, and productivity not advancing as fast and reaching a desirable height on the world scene as they should, but, even more worrisome, when the trouble comes – as it inevitably does, even the flagship companies of the likes of Nortel and BlackBerry are left out in the cold without the support of our own government.

Nortel’s disastrous fiasco often provokes heated debates and I am sometimes asked what I think about it. Not going into the complex details of the underlying decisions that led to Nortel’s collapse, my answer as to the reasons for the ultimate failure in the end-game is that this was primarily due to the own doing of the company senior management, their hubris or political inexperience and naivety. Here we had a Canadian-headquartered flagship tech organization which routinely imported CEOs and executive management primarily from the US, with little or no loyalty and connections to the country. Even worse, the corporate culture was more of a contempt for politicians and government bureaucracy than an astute realization of potentially useful value of cultivating such relationships. No wonder when the trouble came, there was no one in the government willing to throw you a lifeline!

Having recently attended the Tech Tuesday meeting run by Wesley Clover (Terry Matthews organization) at The Marshes Club in Kanata, I am happy to report that finally we see some serious effort to mount a broad grassroots high-tech political lobby. There was a lively crowd of 50-80 high-tech folks doing a little networking by the bar followed by a serious discussion and a debriefing on the voluntary run efforts to bring the tech industry agenda more to the federal government’s attention. Here are the highlights of what’s been achieved so far:

  • After a couple of years of efforts, the infamous double-taxation of US investors in Canada was abandoned
  • Most of the senior government officials at the minister (Flaherty, Kenney, Moore, etc) and DM level were briefed about the tech industry issues and are open to take action given industry input
  • The current efforts resulted in the inclusion in Harper’s recent “Speech from the throne”, a remark to the effect that “The government will release an updated Science, Technology and Innovation Strategy”, which apparently is an important first step for further specific action

Matthews was instrumental in most of the above efforts and it was really heart-warming to see his eager involvement, initiative and leadership. This is exactly the kind of leadership that Ottawa high-tech needs. 

Some of the specific issues and initiatives brought up in the discussion included:

  • Support for the purchase of Canadian tech companies’ products by government, its agencies but also large Canadian organizations such as banks, telecom providers (Telus, Bell, Rogers), etc
  • Angel investment tax credit modeled on the highly successful BC program
  • The issue of more and more restrictive SRED practices by the CRA
  • A need to make IRAP grants non-deductible from SRED claims

 The voluntary task force will keep working at it  over the next 2-3 months, to distill a number of such proposals down to three major initiatives that will be presented to senior federal government officials for inclusion in the government economic action plan i.e. the next budget.

Overall this is a great initiative  and Terry Matthews needs to be commended for spearheading it and providing a very much needed leadership. The ironic part though was that the audience was a totally high-tech crowd and it was pitching to the converted. Nobody thought about inviting local MPs to let them hear directly what their voters need and would like to see happen. And the brutal truth in the world of politics: only votes count!