US-Japan Innovation Summit

Last week I attended the US-Japan Innovation Summit in Nagoya, which was co-sponsored by the US Council on Competitiveness, Japan's Ministry of Economy, Trade and Industry (METI) and a number of other organizations.  The Summit included talks and panels on the various efforts going on in the US and Japan to promote innovation and economic growth.  I was a keynote speaker, and in my talk I reviewed the findings and recommendations of the National Innovation Initiative (NII), as well as the major forces which are driving innovation around the world.

It was a very good meeting with lots of good discussions.  One topic that came up several times was whether there were cultural differences between the US and Japan that have an influence on the approach toward innovation in the two countries.  This is a subject that has been extensively discussed over the last twenty years.

In the 1980s, when Japan's economy was growing very fast and some of its industries (e.g., automobiles and consumer electronics) became leaders around the world, much was written about the new, very disciplined Japanese style of management, and the uncanny ability of the Japanese government, staffed by top graduates from the best universities, to set the right industrial strategies working closely with the private sector.  Then came the 1990s and the picture totally reversed.  The Japanese economy went into a long decline, and the US economic engine -- especially the ability of venture capitalists (VCs) to build an Internet-based "new economy" and launch one successful company after another -- became the envy of the world.  As we know, that too declined after the dot-com bubble burst.

So, what are some of the differences in the way innovation is pursued in each country?   One view expressed during the Summit, is that in Japan innovation takes place mostly in large companies, whereas in the US much of the innovation takes place in new companies started by VCs, often based on new ideas coming out of university research which has been financed by the Federal government.  A complementary view is that Japan has a disciplined, more centralized approach toward innovation, which contrasts with the more chaotic and distributed environment found in the US.

I think these are generally reasonable views which are consistent with Japan having established a leadership position in manufacturing industries in the '80s, and the US being the home of the Internet revolution in the '90s and all the new dot com businesses that sprang up around it.  When the nature of the innovation is "emergent" or unpredictable, as was the case with the all the new business models born of the Internet, the US decentralized style does very well, trying out lots and lots of new ideas and letting them get sorted out in the marketplace, with a few emerging as winners and many failing.  When the nature of the innovation is better understood and more incremental in nature, a more disciplined style, relying on long-term strategic planning and investment will tend to do better, as has continued to be the case with the Japanese success in the auto industry.

How about the future?  In an increasingly unpredictable future, we can expect to face all kinds of new, unanticipated problems and opportunities, where the flexibility and capacity to adapt of American society will serve us well, as I wrote in a recent blog.  But we also know that there are some very important, well known problems that require serious strategic planning, long-term thinking and investment, and very disciplined execution, all strengths of Japanese society.  Health care infrastructures, energy efficiency and disaster management are among the major national problems that require such disciplined planning, investment and execution.

And then there are a lot of problems that fall in between, where a lot of the innovation needed is unpredictable -- but where, as pointed out in the NII report, you can create the right environment for innovation by making sure you have the best possible talent, supported with investments in long-term fundamental research, as well as a solid physical and policy infrastructure.  The application of science and engineering to the labor-intensive services that dominate the economies of both the US and Japan is such an area, requiring a whole new framework, which we have called Services Sciences, Management and Engineering, under which to pursue lots of innovative efforts.  I often point to the manufacturing revolution that Japanese companies led in the '70s and '80s as point of comparison for the kind of revolution we need to achieve, this time with business processes of all kinds.  But, I also think of this business process revolution as having its root in IT, and in particular the Internet and the continuing emergence of software standards around Service Oriented Architectures, whose future evolution is very hard to predict.

Which brings us back to open, global and collaborative innovation as the most important approach for innovation in the 21st century.  In the end, given the diversity of problems we are facing, we will need an equally diverse approach to innovation, so we can make progress toward solving the problems by working closely with each other in the US, Japan and the rest of the world.

Comments

[Jay Huie]

Irving,
That's an interesting discussion since I believe in Kevin Maney's "The Maverick and His Machine", there's a comment in there about how when Japan was rebuilding they modeled them selves on IBM.

In addition to your institutional vs. decentralized view I also think a large amount of differentiation is due to Japan's more immediate set of constraints due to population density and aging.

In the US we have a diversity of living environments which instigates a diversity of innovations. However in Japan where space is constrained, I think you see that a great many of their inventions are centered around those issues (personalization and miniturization as examples).

I think ultimately this is why Japan will lead in a a lot of the areas you mentioned, Health Care and Urban Planning as primary examples.

[Martin Moderi]

The manufacturing revolution in Japan during the 70s and 80s was led by MITI, not by the Japanese companies involved. The lack of competition in Japan at that time helped them to create a colossus of manufacturing might (an excellent analysis of this lack of competition and its affects can be found in "Can Japan Compete?" by Michael Porter), but I would hesitate to call the results of their efforts innovation. They made tremendous strides in quality management, but their work in that area was largely modeled on the thinking of Deming. There is a saying in Japan that goes something like "the nail which sticks up gets hammered down".

MITI was formed in response to the reality that Japan has few resources, and her economy must be export oriented. They were spectacularly successful because they had the right strategy for the times and it was implemented by people with an incredibly strong work ethic. Japan is a much grayer country today than it was then, and it is increasingly difficult for their manufacturers to differentiate their products on the basis of higher quality.

The recent election is a strong indication that the Japanese electorate understands the need for change, but it's not clear to me what the right strategy is for them to deal with the threats from China, India, etc.

[Manuel Avalos]

Irving, that's a very interesting discussion topic about innovation on the 21st Century. US with NII report and other industrialized countries are taking serious steps to innovate as a way to succeed as countries in this Global world. How do you think Latin America countries are doing on this important topic?