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Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”
JBR-07786; No of Pages 8 Journal of Business Research xxx (2013) xxx–xxx
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Journal of Business Research
Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis” Evert Gummesson ⁎ Stockholm University School of Business, SE-10691, Stockholm, Sweden
a r t i c l e
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Article history: Received 1 December 2010 Received in revised form 1 September 2012 Accepted 1 October 2012 Available online xxxx Keywords: Entrepreneurship Government Regulation Corruption
a b s t r a c t This commentary reacts to an article by Hausman and Johnston advocating innovation and entrepreneurship as keys to solving the current global financial crisis published in this special issue. The commentary is a valuable resonance board for my own ideas that, in some respects, deviate from those of the authors. I start from a partially different paradigm than the authors, as my theoretical platform is a new science of marketing and service that emerged during the 2000s. I find many of the suggestions logical and thoughtful, but primarily academic and US-centric. Will they work in practice, and especially on a global scale? I think the suggested solutions will work under certain conditions, but the world is imperfect and the necessary conditions are often absent. For example, the article shows confidence in the ability of governments to regulate and control and of research to contribute with more advanced metrics. Here I have doubts. I also find economic and management disciplines require new aspects for proposed solutions to work. Among these new aspects are the lack of genuine corporate social responsibility, growing corruption and crime, and the role of financial leaders whose behavior opened a new research field called “corporate psychopathy.” © 2013 Elsevier Inc. All rights reserved.
1. Introduction The Hausman/Johnston article advocates the urgency of stimulating innovation. The article is an excellent review of what innovation may mean in the context of the current financial crisis and offers a mind-boggling wealth of statistics and empirical research from scholarly literature and media reports. The article reflects the thinking of economics and conventional business and management methodology and theory, but not new theory and day-to-day practice. My career is fifty-fifty business practice and academic research in marketing and service management, meaning that I enter the text through a different door than you. My prime interest is the gap between theory and practice, and between thinking, decision-making, implementation, and results. My theory is the frontline of marketing and service research. I also draw on my interest in scientific methodology and on whatever experience or thoughts I have from fields not covered by my research themes. As the article says, innovation is a driver of the economy. Therefore, innovation deserves special attention in a global financial crisis, but more importantly, as you point out, innovation should occur continuously to prevent crises. But is innovation the driver or just a driver? Is innovation the white magic and cure-all—or is innovation black magic, too? Does innovation necessarily offer better value to society?
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I had not expected my commentary to be so long. Despite differences in the perception of the global crisis and its causes and remedies I am grateful to you for forcing me to consider the issue and take a stance. I could not do so without your article as a sounding board. This commentary is a follow-up to an earlier article, “The global crisis and the marketing scholar,” published in a European journal (Gummesson, 2009). The next sections present my current theoretical stance, offer my comments to some overriding issues, and then proceed with my reaction to the last section of your article called “Recommendations to stimulate increased levels of innovation”. My recommendations for an alternative agenda conclude this commentary. 2. My theoretical platform: a new science of marketing and service My comments reflect the lenses of three long-term research themes that all intend to help us better understand and serve society and the market, and create value for citizens, consumers and businesses. This research, unknown territory to economists and the mainstream business and management disciplines, constitutes the new science of marketing and service. The themes are: ▪ Service-dominant (S-D) logic. In S-D logic the issue is not goods versus services as these two and other inputs, like software and knowledge, always appear in combination. You mention product(s) 33 times and service(s) 4 times with products and services as two distinct categories. In contrast the new science of marketing and service
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Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025
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proposes value and service (in the singular) as the focal points. Value is assessed and actualized by the customer (value-in-use). As a consequence S-D logic defines a supplier's offering as a value proposition. Suppliers do not do something to customers as if customers were passive (operand) resources; suppliers do something with customers as customers are also active (operant) resources. The supplier and the customers, as well as intermediaries, shareholders, employees and others in a network of interactive relationships, co-create value. Co-creation consists of both independent action by a supplier or a customer (one-party), interaction between customers and suppliers (two-party), and interaction within a broader network (multi-party). In the same vein Mele, Russo-Spena, and Colurcio (2010b) “…explore the understanding of innovation as a value co-creating process or resource integration within networks of actors…” (on S-D logic, see further Ballantyne & Varey, 2008; Grönroos, 2011; Gummesson, Lusch, & Vargo, 2010; Vargo & Lusch, 2008). ▪ Service science. In the beginning of the 2000s, IBM introduced the long-term service science program to stimulate innovation and improvements of services systems, considering their complexity and importance for the development of a “smarter planet”. Although S-D logic emerged from academe and service science from business practice, they found these two publics shared the same concerns. One result is that S-D logic is the foundational philosophy of service science. For service science, the focus is on interdisciplinary research and education in service, especially bringing knowledge from business schools together with schools of technology (see further Maglio & Spohrer, 2008; Maglio, Kieliszewski, & Spohrer, 2010). ▪ Many-to-many marketing. Many-to-many marketing is an approach to marketing addressing the complexity of contemporary markets and based on network theory. Many-to-many marketing is the next generation of relationship marketing and other relational applications with relationships, networks, and interaction in focus and describing, analyzing and utilizing the network properties of marketing. In doing so, complexity, context and change emerge at the fore in an attempt to design theory on a higher level of abstraction, yet rooted in market realities. Customer-to-customer (C2C) interaction is particularly topical today. Although absent in conventional microeconomics market typologies and marketing management, the importance of C2C marketing is not new. Through the innovation of the Internet, mobile communications, social media and wikis (collaborative websites), C2C interaction now stands out as a major power in the market. Many-to-many marketing has close affinity to S-D logic and service science, as well as to more general approaches based on systems theory, such as the viable systems approach, VSA (see further Barile & Polese, 2010; Gummesson, 2008a, 2008b; Mele, Pels, & Polese, 2010a). In the new science of marketing and service, customers obviously exhibit fundamentally different roles than in traditional marketing, service management, and economics. An established division of customers in marketing theory is between business customers in business-to-business marketing (B2B) and consumers in businessto-consumer marketing (B2C), although B2B and B2C are increasingly dealt with as interdependent. The word customer appears 5 times in your text and consumer 9 times and my conclusion is that you mainly have consumers in mind. Starting in B2B markets, Eric von Hippel of MIT studied the role of business customers in innovation processes. In his first study of 111 scientific instrument innovations, he found that “… 80% of the innovations judged by users to offer them a significant increment in functional utility were in fact invented, prototyped and first field-tested by users of the instrument rather than by an instrument manufacturer” (von Hippel, 1976). His continued research elaborates further on the customer's role in innovation and also considers consumers. Just as suppliers, customers are always operant resources and co-creators.
“The marketing concept” existed as the foundation of marketing management for at least 50 years. The marketing concept states that suppliers should put the customer in focus and find and satisfy customer needs and wants. Customer orientation is in opposition to the supplier-centric view privileging the notion that a market is driven by production and technology and controlled by suppliers, with customers reduced to mere operand resources. But even with a customer-centric view, the operationalization of supplier behavior shifts only slightly, and consumers remain operand or perhaps semi-operant resources. Your article and the references you rely on, are therefore, incompatible with the new science of marketing and service. 3. Comments to your text Here are comments to a series of statements in your text: ▪ “… Increasingly, innovation will come from co-creation between technical and business people who can interface effectively with users and understand users' needs…”. Co-creation between technical and business people who have an interface with consumers is narrower than co-creation in manyto-many networks. ▪ “Our thesis is that companies who are innovative, who provide products desired by consumers, and effectively commercialize these innovations contribute to a strong economy that can more effectively weather failures in other economic elements.” ▪ “Businesses who can harness this innovative intensity will be the survivors. Innovations can no longer be managed as ‘silos,’ tucked away in corporate, university, or government research labs, in incubators, or within venture capital funded entrepreneurial start-ups.” I agree about the silos, but “harness” may be understood in at least in two ways. First, and in my experience the most common meaning, is to take control: How do suppliers manage customer relationships; how can they own customers; and how do they force customers to do as they wish? Second, and more realistic and more futures-oriented questions are: how do firms pick up what is going on and find a niche in the market; how can they influence the niche to some extent; how can they be smarter than the competitors in co-creating the future with customers; and how can suppliers avoid doing things to customer instead of doing things with customers? ▪ “Firms can utilize this data [from social media] to uncover unmet needs and determine what consumers are looking for in the products they buy.” Social media offer new opportunities as firms can observe C2C interaction but also participate and measure certain behavior. As you point out elsewhere the open source model allows innovation to come from numerous people spontaneously or through organized crowdsourcing; the Linux operative system and Wikipedia are such examples. ▪ “America's sophisticated marketing, distribution, sales, and customerservice systems have long been the tools that translated invention into innovation, thus creating wealth for firms and society…” Numerous working service systems are in operation, but as the IBM experience indicates, service systems, in general, are very far from satisfactory. A case in point is health care consisting of interaction in complex networks of working and non-working subsystems. ▪ “…what the country needs are better MBAs and an extraordinary willingness of its consumers to try new things … such ‘venturesome consumption’ is a vital counterpart to the country's entrepreneurial business culture.” Yes, no doubt MBAs should be trained more adequately. But why should consumers volunteer to help companies, which they often distrust, so that executives can get higher bonuses and become
Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025
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even richer? I find the call for more “venturesome consumption” to some extent abusive to consumers. 4. Improvements through planned innovation and follow-up metrics Innovation and entrepreneurship are often bunched together, but as you also explain they come in many shapes. An innovator contributes with something novel but an entrepreneur is required to implement innovations in the market. He or she is sometimes but rarely the same person. The innovator is usually not a street-smart, aggressive, customer-oriented, and results-driven doer. The entrepreneur does not need to be an innovator but must recognize the opportunity offered by innovation. You seem to have a lot of faith in the planning of innovation, education, and government incentives. Consider these aspects of innovation: ▪ “Skunk works” lurk in a secret corner of the big company. Engineers and designers see a potential in something that management has not authorized, maybe even forbidden. But they still live on. Skunk works can become a success—Saab's launching of the first mass-produced passenger car with a turbo engine is a case in point—but failures occur as well. ▪ Serendipity means that you are looking for one thing and find another. Instead of showing disappointment you turn the question around: You didn't find what you were looking for but what can you do with what you found? The successful 3M innovation, Post-it (the little sticker that can easily be removed without damages), is an example of serendipity. They were looking for the strongest glue possible—and ended up with the weakest possible! ▪ The authors refer to Schumpeter's famous strategy of “creative destruction”. The question is when the time is ripe to destroy something. Railroads and streetcars were closed down in favor of passenger cars, trucks, subways, and airplanes, only to be reopened and new ones to be constructed a few decades later. Skyrocketing energy prices and the environmental impact on air, water, health, and safety had entered the stage. In my interpretation creative destruction means the reconfiguration of roles even if total destruction may occur at times. Railroads today are high-speed connections between major cities thus competing with airlines at the same time as railways are feeders to airports. ▪ Planned obsolescence is built into the design of a product and a marketing strategy is destruction to the benefit of the supplier but not to the benefit of the customer. Cell phones and computers may technically function for decades but they have become fashion products representing lifestyles. New software with miniscule added technical value, even just cosmetic changes that demands more memory capacity is continuously introduced to replace perfectly functional existing software. You mention the need for broader and longer-term metrics than short-term profit and loss accounting. You do not refer to the past 20 years of efforts by both scholars and practitioners to create the balanced scorecard and other solutions for that very purpose. The core characteristic of the balanced scorecard is a mixture of financial and non-financial metrics, each compared to a target: the identification of a few relevant financial indicators, in particular how the company looks to shareholders, measuring how customers experience the company, indicators of the efficiency of employees and internal business processes and indicators of learning and growth with special bearing on long term development and innovation. Eventually the non-financial measures should translate into money. Much criticism has been raised against the balanced scorecard and its implementation. In my experience the criticism is primarily a token of the difficulty, even the impossibility of measuring a company's short term and long term success with simple quantitative metrics, and refusing to recognize the complexity and how that
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could be handled in a practical setting. You share an over-reliance on the blessings of extensive metrics when you quote “You get what you measure” as an absolute truth. You even refer to a recommendation to measure discontinuous innovation. Breakthrough innovation is about the unheard-of and unplannable and how can the unknown be dealt with in advance? 4.1. US, European or global perspective? The article offers a US baked cake with a global economy glazing. Even if people keep chanting that the economy is global they live their daily lives in local economies—and empathy is limited. My perspective is national first and European Union (EU) second. Although I make efforts, my knowledge and empathy is not sufficient to make me claim I think like a world citizen. The current economic crisis may very well be triggered by the overly innovative and risky mortgages (subprime loans) in the US. But the financial and economic system of the world is not a system but a network of subsystems, individual actions, political decisions and happenings spawned by a clutter of rational and irrational, primitive and sophisticated, and honest and criminal driving forces. No economists, business people, politicians, or institutions like the UN or the World Bank, has a comprehensive view of its complexity. Here are a few words from Europe to add to the US perspective. The EU is a mega alliance with half a billion inhabitants in 27 independent member states, where people speak 23 official EU languages and another 35 minority and immigrant languages. In a few years another 100 million may be added if Turkey becomes a member. EU will then be twice as big as the USA but only half of China and India. Its currency, the euro, is not used by all member states, among them the United Kingdom. Two of the smallest but wealthiest nations of Europe, Norway and Switzerland, have not applied for EU membership. In 2010, only two of the EU members fulfilled the minimum requirements of economic performance for membership. A special EU crash program saved Ireland, at least temporarily, but still in 2012 Spain, Greece and others were in the waiting line. The EU has a special fund, the EFSF (European Financial Stability Facility), in 2010 worth US$60 billion, to support nations in distress. The scary thing is that no one has the knowledge required to control the effects of such a fund. Financial markets are increasingly complex and the effect of macro-type interventions are difficult to trace even in retrospect. The final outcome is affected by sudden events, by mounting problems reaching a tipping-point followed by a collapse, manipulation by individuals and organizations, both by supposedly legitimate ones and by individual and organized corruption and crime. Since financial markets are now essentially deregulated and global, they operate 24/7. “Money” is bought one second and sold the next through computers that never sleep. Implicitly and explicitly your article promotes a US corporate and academic view, which is disputable and does not deserve the status of a general and global paradigm. The view includes the following values: ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪
only big companies count only growth counts only profits count only growing stock prices count short term over long term innovation over improvements of the old free markets over regulated markets private enterprise over government operations.
This commentary addresses some of these values. As a crude approximation with many variations between nations, big companies account for 1% of all businesses of a nation, but for 50% of private employment and revenue. The remaining 99% of all companies embrace one person, one family, or a small organization. Most of the small
Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025
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ones don't want to grow. They don't want to be quoted on a stock exchange. They don't want to be global. They want to be citizens in their town and be in direct control of their business. In highly populated countries like Bangladesh and India with a low average income, family businesses led by women have been made possible through micro loans, an innovation by Muhammad Yunus and the Grameen Bank. Unfortunately irresponsible banks and loan sharks offer fake micro credits and lure poor people into traps. The former CEO of ABB, Percy Barnevik, who now heads the aid organization Hand in Hand, compares this micro loan bubble with the subprime mortgage bubble in the US. He states that genuine micro credits are only effective if coupled with training and coaching of the new entrepreneurs (Barnevik, 2011). Following this strategy Hand in Hand is aiming for the creation of 10 million new jobs through small firms. Some operations, however, need big companies; a Boeing 747 or an Airbus Super Jumbo cannot be produced on a small scale. But others, such as the neighborhood plumber, the corner florist, and the local medical center, do not improve customer service and value by becoming bigger and global. Both big and small can be ugly if badly handled; both can be beautiful if well handled (Schumacher, 1973). And: innovation comes both from independent individuals, small organizations, and huge corporations. Even if huge, no business today is a self-sufficing economic unit, not even giants like Boeing and Airbus. A company is best described as a complex network of numerous interactive relationships between both big and small firms. 4.2. Both individuals and corporations need to be responsible citizens According to Rideau (2002) “All creation stems from the principles of white magic…So as to understand the world, we must learn to untangle the tree of white magic from the parasite lines of black magic that surround it…”. Corporate social responsibility (CSR) and long term sustainability or short term profit maximization—white versus black magic—that is the question. For want of a CSR culture no laws, regulations, patents, courts, or police forces can make companies engage in innovation that contributes to the welfare of a nation. Companies and even business school professors seem to think that the corporate mission is selfish maximization of profits without consideration of the societal context within which they work. The reader may remember the words of super-broker Gordon Gekko in the 1987 movie Wall Street: “The point is, ladies and gentleman, that greed … is good. Greed is right. Greed works. Greed …captures the essence of the evolutionary spirit. Greed in all its forms—greed for life, for money, for love, knowledge— has marked the upward surge of mankind…” Yes, Wall Street was a movie and fiction—but today the fiction has turned reality. The idea is that you can do anything however destructive as long as the law does not prohibit your activities and can send you to prison or in its more pragmatic interpretation: as long as the risk of getting caught is minimal. The idea is of course immature and savage. As an individual you are expected to be a good and honest citizen and take care of your family, say hello to your neighbor, work, pay taxes, and not jaywalk. But then comes the transformation. You form a company and all of a sudden your sole responsibility is yourself and profit maximization. If the corporation grows, a battalion of lawyers assists in dodging laws and regulations and public relations firm spin stories about the corporate brand. To please the public the corporation donates money for a good cause. As Rideau (2002) continues: “Black magic always wins in appearance; you will always see it dominate the established institutions, glorified by formal rites and astonishing shows.” Examples of innovation are found in so called “creative finance” and “creative accounting”. As epitomized by the spectacular cases of Enron (doctoring electricity markets and the price of its shares) and Ernie Madoff's collapsed Ponzo scheme (a pyramid game) where
people lost their pensions, creative can be a fancy term for deliberate fraud. Without the ethical dimension, creativity is destructive. Extreme greed has become the number one driver for an increasing number of executives, corporate boards, and shareholders. The global bonus epidemic is a financial variant of AIDS/HIV, and a vaccine or cure has not been found. Executives demand bonuses even when no causal link can be found between their actions and the profits, and even when their company is bankrupt and sustains on temporary state subsidies. An example is the exuberant bonuses of the former CEO of the European electricity supplier Fortum, a primarily stateowned and partial monopoly with 1.6 million customers. For a few years, with result mainly stemming from external events and increased electricity prices of a manipulated international “electricity exchange” and presented as “world market price”, these bonuses gave its CEO ten times his salary. He may have done a good job in other ways but that is what should be expected within his already inflated salary. The robber baron from past centuries is back. Robber baron designates a businessman or banker who uses questionable practices to become rich. A robber baron economy with unlimited greed attracts psychopaths and cleoptocrats. In Russia today's oligarch in its most corrupt version consists of politicians and bureaucrats of the former communist nomenklatura who use their network to steal state property and smuggle fortunes to offshore tax havens. Theories of “corporate psychopaths” are providing explanations to the financial crisis that has not been explored in economics or management before. The volatility of business—shorter term and anonymous ownership, more mergers and acquisitions, switching between employers to boost one's career, etc.—has kept growing during the past decades. The outcome is lack of social control in organizations opening up for psychopaths to maneuver their way to top positions and destroy formerly respectable corporations. Psychopaths suffer from an incurable illness characterized by lack of empathy, mythomania, extreme greed, an urge for power, but also an unusual drive to achieve their goals. In this process they often display unusual charisma and charm and their behavior can easily be mistaken for outstanding entrepreneurship and leadership. The financial sector attracts psychopaths more than other sectors (Boddy, 2011).
5. Comments to the article recommendations At the end of the article you present “…recommendations necessary to spur innovations that can improve company and national performance.” I find a lot of the recommendations sensible, but I also find footprints of rhetoric typical of academics, bureaucrats, and politicians. Here are my reactions, somewhat differently grouped than in your list.
5.1. Real knowledge—or just symbolic reality and sorcery? The recommendations open with a quotation from US ex-president Bill Clinton saying that what matters most for the future of a nation is knowledge. Let me add a quotation from Hamlet (Act II, Scene ii): Polonius: What do you read, my lord?Hamlet: Words, words, words. Clinton may well be right but he commits a common sin: he does not explain what he means by knowledge. He shares this sin with both academics and politicians who claim that society is knowledge or information based. You quote research that claims that more information is now generated in one year than in the previous 5000 years. Is this really information that can be turned into useful knowledge or merely a tsunami of noise that you have to protect yourselves from not to get drowned?
Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025
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In my view society is not knowledge-based; its base is words, numbers, images, and sound. The base then consists of symbolic representations of certain dimensions of the real thing—but they are not the real thing. Media reports are received by a great deal of the general public as one-liners and sound bites rather than coherent explanation of a phenomenon. Let's consider a recent and highly controversial innovation that represents a discontinuity in information and knowledge management: The leader of WikiLeaks, the Australian Julian Assange, is an innovator and entrepreneur. WikiLeaks popped up from nowhere in 2007. Assange is different and doesn't fit in any pre-designed box. He couldn't have been innovated by politicians, bureaucrats, or professors but he presents a quantum leap in information transparency. What legislators, government agencies, courts, academic researchers, investigative journalists, and private citizens have tried to come to grips with and seldom succeeded has suddenly been made open to a global audience. No wonder that governments, politicians, bankers, CEOs, and others fear what may fall out of their secret closets. Another innovation and infrastructure, the Internet, has made the leaks possible. The brave whistleblower in a company or government, like Daniel Ellsberg in the 1960s who made the Pentagon papers on the disinformation about the Vietnam war public, worked for many years to get the existing media publish them. WikiLeaks can make findings globally public in seconds without anybody's permission and at a negligible cost. Whistleblowers disturb and destroy corrupt systems; they are loved and hated and they have to look forward to future harassment. A lot of people live in the exposed systems and fear that their lives or careers will fall apart. Would those who felt safe when committing financial frauds that contribute to the global crisis have felt as safe if WikiLeaks had been around at an earlier stage? Shortly after the crisis started, WikiLeaks revealed secret bank accounts and money laundering through the large Swiss private banker Julius Baer and were instrumental in puncturing the Icelandic financial bubble by leaking confidential documents from the Kaupthing bank to the government which took immediate action to stop the bank. Assange has been accused of sexual harassment and when this article was written he was wanted through the Interpol. People can ask themselves: Are the accusations true or are they a planted “plumber job” to stop the leak by scandalizing its front figure? Whatever the outcome, Assange's private life cannot stop the WikiLeaks concept now. The new idea of mass-leaks through advanced information technology has being taken over by many others. Whereas perhaps some information should stay secret, what goes on with the citizens' money behind the closed doors of high-profile financial institutions certainly needs to be made public and the institutionalized cheating needs to be exposed and put to a halt. The shabby dealings of the financial sector, including banks owned by organized crime, the whitewashing of drug money where even ordinary banks turn a blind eye, and the finance of terrorist activity, also influence the world crisis. Business schools and economists are not aware of the impact of crime and corruption. Numerous statistical sources are used in public life and presented as evidence although the reliability of these sources is limited. A problem with statistics, especially of the macro type, is that definitions vary between countries, years, and companies and the definitional shortcomings jeopardize comparison. Numerous errors stem from the sources: how representative are the data, how correct are they, and what was the quality of the data collection process? And most importantly: Do governments and others who provide the data make an effort to be impartial and objective or do they have a hidden agenda, a purpose of public relations and lobbying to publish certain data and draw inferences from this data to favor a certain goal? You also refer to opinions from leaders in government, non-government organizations, education, and industry as evidence, as hard facts. They are what you say in the first place: opinions.
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5.2. Here is a case illustrating “real reality” versus representations of reality I went to another eye-surgeon for a second opinion on my eye disorder. I had brought the records and the advanced OCT (Optical Coherence Tomography) picture from the hospital. OCT is a true technological innovation and a huge step forward from blurry blackgrey-white X-rays, once a revolutionary innovation. Still my new surgeon just glanced at the picture. “Aren't you going to study the picture,” I said. “No,” he replied. “I am interested in your eye, not a picture of your eye.” Then he examined my eye for 40 min. He was of course right. A picture, even as advanced as the one I brought, is a still life and taken out of context. Although a picture may reveal something that can be difficult to discern even with microscopes and other instruments and thus be an aid, a picture can't replace an experienced doctor's collected explicit and tacit knowing. “ Doctors today are not trained to do a physical diagnosis,” he continued. “They take refuge to images and indicators from tests.” Medical indicators are approximate and crude operational definitions that represent a distribution around what's “normal”. Further, the reading of an indicator may change from one hour to another and misreading and processing errors occur. High-tech solutions are often overdone claiming that they are superior just because they are technologically intricate. Paying your bills on the Internet is claimed to be efficient and profitable for everyone. For some, the answer is yes (especially the banks); for others, no. In new service management theory, which includes relationships and interaction, each customer is an individual, not a grey mass. Every customer is now forced to learn to be a bank teller, having to invest in bank teller programs and equipment, while the bank keeps charging fees. A word, a number, or an image is not the real thing; they are idealized symbols and abstractions. Sometimes they may represent reality well and add to the ability to grasp a confusing world. Sometimes they are too crude to even pass for approximations and they misrepresent reality. Good theory rooted in reality is like a map guiding us through unknown territory. Bad theory like bad maps leads us astray. Good theory is explicit and can be communicated. Experience, intuition, and common sense may also provide good maps although as tacit knowing. In the wait for something that may never arrive— evidence-based, general, and complete theory—the compromise is mid-range theory based both on explicit theory and tacit knowing. Some of the future is reasonably predictable but a lot is not and therefore cannot be planned. Instead, by constant monitoring of a situation and its progress and being prepared to rethink and change direction, many changes and unexpected events can be handled. That is as far as man can realistically come leaving us with elements of risk and uncertainty. 5.3. Protection of intellectual property Recommendations: ▪ ”Ensure that the intellectual property of innovators is secure at home and abroad.” ▪ “Streamline patent application process to increase speed and enforce protection of patents.” To implement these recommendations would require negotiations with numerous countries with different laws and traditions, securing that the stronger parties, making survival practically impossible for small inventors who lack financial muscle, would not steal patents protect their rights. Citizens are not in a position to protect their interest against abusive patent-holders that maintain monopolies. And customers can also cause damage by illegally copying and downloading music, movies and books.
Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025
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The EU and the US host several bizarre patents laws lobbied by companies. For example, the laws may allow patent-holders to “own” certain cells of a person's body; they let a foreign company patent indigenous seeds in India and demand royalties from poor farmers (17,000 suicides per year are reported caused by foreign companies driving local farmers bankrupt); when Monsanto's gene manipulated seeds blow from one farm into another in Canada, the contaminated farm was ordered to pay royalties (Monsanto lost after long fights and court trials); and currently the EU plans to limit consumer access to minerals and vitamins in herbal medicine, an issue lobbied by the pharmaceutical industry because herbs cannot be patented (read: monopolized) by them. Sometimes formulas and designs can be kept secret so that they cannot be found out even through reverse engineering. Finally, a different protection issue can be added: building brands. Today brand management is a major dimension of marketing. Strong brands help to create customer loyalty and long-term relationships in the market and hold back competition. Despite efforts to protect rights, estimates show that the amount of counterfeit goods and pirated copyrights in world trade grew from US$100 billion in 2001 to $250 billion in 2007 and has kept growing. Internet sales account for most of the increase in counterfeit goods. To make the recommendations on protection of intellectual rights credible and find out if they are implementable you should offer an estimate of how many years this process would take, how much resources are need in manpower and money, and the likelihood of at least partial success. 5.4. Research and education Recommendations: ▪ “Invest in basic research.” I agree, but who should do the research: universities, private firms, individuals, or all of them? Here is an example. Apart from being a highly sales, growth and profit oriented corporation, IBM has a history of engaging in long term basic research. Five IBM researchers have won the Nobel Prize in Physics and more could very well have become laureates, for example Benoit Mandelbrot for the discovery of fractal geometry. The IBM Service Science program cooperates with more than 500 universities, business schools and schools of technology and also with other private companies. Universities used to differ from high schools as the teachers, the professors, lectured on their previous and ongoing research and stimulated reflection and dialog. Today, undergraduate university education involves junior lecturers, “textbook managers”, who guide students through a standardized and increasingly IT-based package. Research techniques with heavy reliance of statistics that dodge real world complexity are especially dominant in economics but also in disciplines like marketing. One should think that the Nobel Prizes given to scientists vouch for reliable findings. That is not the case. Alfred Nobel stated in his will that the prizes should go to “…those who have made the most important contributions to mankind.” According to its statutes, the Nobel Prize in Economic Sciences could be awarded anyone in management, economics, law, sociology, and other disciplines that have made a major specific contribution to the understanding of an economic issue. The Prize has been colonized by economists and is often erroneously referred to as the Nobel Prize in economics. In 1997 financial economists Robert Merton, Harvard Business School, and Myron Scholes, Stanford University, shared the prize” for a new method to determine the value of derivatives.” Soon afterwards, following the East Asian and the Russian Financial Crises, their highly leveraged fund lost US$4.6 billion in less than four months and failed. The Merton/Scholes case is one of several examples of the risks that consumers are exposed to when they
invest their savings in a retirement plan—even if established by Nobel Prize winners. ▪ “Increase education in science and math by recruiting more teachers and retooling existing teachers.” Natural sciences are important but so are parts of social sciences and the humanities. When launching service science IBM found that schools of technology had no education in service management and service systems where the user and consumer was in focus. To instill a culture of social responsibility, the humanities play a lead role. Neither technological and natural science, nor economics and management disciplines, can take on this role. ▪ “Encourage students to major in marketing, entrepreneurship, and related disciplines to help guide the creative process around consumer problems and facilitate commercialization of innovations.” Marketing gets space in business schools. Production or operations management exists in some business schools, but not in others. The business school curriculum is filled with peripheral support systems: organization theory is big, accounting is big and finance gets bigger and bigger. In business schools based on the economics tradition, operations management does not exist and marketing may reflect only microeconomics. But even if marketing has a place, what kind of marketing is taught? The textbooks are usually structured by means of 1960s theory dressed up in new cases. The developments that I referred to earlier concerning service, complex systems and many-to-many marketing, are not even mentioned, much less integrated into theory. Corruption and global organized crime does not exist in management and economics education. Take any day of the week around the year and read the top business newspapers and journals and you find that almost every issue has one or more articles on these subjects. The black economy varies from 10 to 90% depending on the country; nobody really knows and the definition is fuzzy (Bagelius & Gummesson, 2013). ▪ “Develop new courses in creativity, innovation, and entrepreneurship that focus on the tools and skills necessary for innovation and commercialization.” ▪ “Develop non-degree programs to teach entrepreneurs and business managers to be more innovative.” A tricky question is how you teach creativity, innovation, and entrepreneurship. Who can teach these skills and can they be taught through theory, models, textbooks, and classroom exercises? Who has the knowledge to educate not only young students but also experienced entrepreneurs and business managers to be more innovative? The most important lessons may concern attitude and cases of both successful and failed efforts. ▪ “Provide a federal tax credit to encourage employers to make continuing education available to existing employees to maintain their skills and introduce them to new tools, new theories, and new philosophies.” This is only possible for big companies. Small companies cannot afford to spare their employees for courses; their training is on the job. 5.5. Access to innovative resources Recommendations: ▪ “Steer market actors towards innovation-related investments. This includes investors and venture capitalists.” How can a government or research fund tell what is innovationrelated but in retrospect? They are not seers, although they like posing as such. ▪ “Avoid the pressure for relatively quick returns that comes with venture capital money.”
Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025
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Yes, bring back the long term and sustainable thinking of the dedicated industrialist. The trend away from operations to cash flow, from producing something of value to earning money on money with no genuine value added needs to be reversed. Finance is only a lubricant and the lubricant cannot replace the engine. The engine of business is built by production, marketing, and consumption; you have to have something to sell and someone must buy your output. The original mission of a stock exchange was to provide firms with capital and to assess their daily economic value. The recent incident with the innovation Facebook is an example of how the stock exchange lost its serious mission and instead offers an opportunity for owners—who don't need the money—to expand the company—to boost its stock price and then exit before the price goes down.
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productivity do not emerge from a specialized department but from efforts of all resource-contributing members of a system. ▪ “Invest in new tools, including information technology, connectivity, computing power, genomics, and nanotechnology.” Such investment is certainly called for but only forms part of business success. As service science preaches: both innovation and improvements of existing service systems are needed. They both exist in a complex social reality of many-to-many networks where human behavior reigns. ▪ “Put aside goals of efficiency in favor of ‘green thumb leadership’ to encourage risk taking in innovation. Thus, efficiency measures are used for factory farms (current business operations) and greenhouses or experimental gardens for innovation.”
5.6. Incentives to innovation Recommendations: ▪ “Foster incentives to ensure continued growth in innovation and new technologies.” ▪ “Accelerate activities, such as innovative ideas, for which barriers may have been too high otherwise through tax incentives or grants.” High taxes can kill but low taxes do not alone stimulate progress. To give tax incentives and grants has shown to be capricious; to provide infrastructures as you recommend may be the best option: ▪ “Ensure ubiquitous broadband Internet access as a means to develop innovative ideas and as a vehicle for the diffusion of innovations.” Provide not just broadband. For example, well maintained and upgraded roads, public transportation and postal service are just as important infrastructures. Amazon.com could not do without service systems through which their parcels can be dispatched. When infrastructure is provided, see what happens. The past twenty years of developments of broadband and mobile networks have inspired customers and citizens develop the use of them. You also mention three types of incentives that have been introduced in the US: ▪ “…broadening access to the research and experimentation tax credit to make it easier for companies to deduct many costs associated with developing new technologies.” ▪ “…funding increases for science and technology (to over $100 billion) at the National Science Foundation, the Environmental Protection Agency, and the U.S. Departments of Energy, Agriculture, Interior, Commerce. ▪ “…innovation think tanks to tackle risky innovations too great for a single private firm, … [and] help technologies bridge the chasm between basic research and commercial development.” Such incentives may work at times but may also end up in frustration. The outcome of the incentives is hard to predict and the effect may be hard to establish even in retrospect. And people tend to use loopholes and fraud to profit from subsidies which is a major headache in the EU. 5.7. Management initiatives Recommendations: ▪ “Management efforts to stimulate the economy need to both reflect the current drivers of economic growth and creative destruction.” I agree but sometimes destruction of the existing seems to become a goal in itself; a reasonable trade-off between what should be kept and what should be destroyed must always be established. ▪ “Invest in the skills and abilities of all workers.” Investing in skills is a strategy of quality management. Quality and
Day-to-day improvements should be equally important for the success of an economy and as vaccination against severe crises. Destructive computer viruses and other threats such as unauthorized access to information and phishing with stolen identities have become a new market for crime. Legislation and law enforcement is not up to the task; they are far behind the real world innovations. If Bonnie and Clyde had lived today they would not have robbed banks and lived a hunted life on the road. They would have led a comfortable and fairly risk-free life at a desk and a computer with a vulnerable Microsoft operative system. Incremental improvements somehow sound less sexy than flashy quantum leaps but they constitute the day-to-day efforts following the quality management strategy of continuous improvements, above all famed for leading to the sustaining success of Toyota. Most innovation takes place within an established paradigm. Society consists of a bouquet of service systems that need discontinuity and quantum leaps as well improved quality and productivity of existing service systems and cheaper, more integrated and seamless user-friendly and hassle-free systems. The discontinuities are far between but they may provide a new infrastructure for society, most recently the Internet and mobile communication. When launched, radically new products or systems are rarely functional and the development is very much driven by customers. Still many companies deny the problems and unload their costs on customers. A recent one is the premature launch of the Vista system by Microsoft. Is the problem lack of innovation—or lack of an ability to implement the new? My feeling is that large warehouses of unexploited innovation already exist but a shortage of entrepreneurs and supportive culture and infrastructure prevent us from exploiting them. To stimulate more research and control the research even tighter is no solution. But can people be educated to become entrepreneurs or be selected for their entrepreneurial future potential? No! The definition of both innovation and entrepreneurship is that neither is foreseeable. Still bureaucrats, politicians, and research funds believe that they can plan the unexpected and the yet not known. The process of exploiting ideas and their launching can include instances of planned action. But the planned action is a means to sort things out and is never the driver. ▪ ”…commercialization, diffusion, and use of inventions is of more value to companies and societies than the initial bright spark of engineering or technical brilliance.” Why more; neither could do without the other? What could Edison have done without the invention of the light bulb and Ford without the invention of the car? ▪ “Attract, motivate, and retain individual innovators in companies.” To do so, an organization has to accept deviant behavior. Not many organizations do that in practice; too often they just offer such rhetoric.
Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025
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6. My recommendations These recommendations are focused on what may be actionable in a real world of imperfections and shortcomings. Society has to do away with conventional and wishful thinking of politicians, bureaucrats, and academics if not rooted in economic and managerial reality. Recommendations by economists can be especially misleading. Whether called macro or micro, economics rarely steps further down than to statistical data on industries. The bulk of economics and its theory are neither based on the daily action and interaction of business leaders and employees, nor on the behavior and role of customers, citizens and other stakeholders in a business network. Theory from management and business disciplines such as marketing is based on the behavior of consumers, organizations, and markets: ▪ Focus both on innovations as quantum leaps and as day-to-day continuing improvements. An innovation may offer a radically new paradigm but the boundary is fluid; accumulated incremental improvements may very well lead up to a tipping point where they turn into something novel and discontinuous. A software program, a website or a laptop that lacks quality in detail such as ease of navigation and security will not contribute to value-in-use even if radically innovative. ▪ Provide infrastructure and invite citizens, consumers, and corporations to dance on new stages as well as on old stages that are well maintained and perhaps expanded. Better infrastructure improves business opportunities. A widespread belief that governments and education can entice innovative action from a distance by offering a flood of Hamlet's “words, words, words” is an impediment to action. ▪ Liberate universities from the current and global bureaucratic, financial, and political overkill. Innovation and entrepreneurship are not initiated by plans, metrics, and rankings but by support that releases untamed forces. ▪ In the name of scientific rigor, economics and management/business research based on quantitative studies of simplistic causality are awarded and its researchers are promoted at the cost of other skills that are more urgent for developing future theory and understanding. What is gained in theoretical rigor is lost in relevance and validity. Instead, business schools should develop proficiency in applying systems theory, network theory, case study research, and other approaches that address real world complexity, context, and dynamics. ▪ Encourage the use of experience, intuition, common sense and other expressions of tacit knowledge alongside with academic and scientific research. ▪ Accept that small companies without growth and profit maximization ambitions are as important as large companies and that both gain from a life in symbiosis. ▪ Foster the idea of contributing to us as citizens through a balanced mix of planned government policies, regulations, and free market competition. Send the uncivilized and inhuman robber baron mentality to the grave. ▪ Abandon the naive idea that a society dominated by natural sciences, technology, smarter marketing, and courts of law can create value for citizens; they need the humanities, too.
▪ Plainly put: metrics are good when they are useful. Increased sophistication, even promoting that everything must be measured whether in practice measurable or not, based on the dogma that numbers are the truth, is a waste of brainpower. Imperfect, arbitrarily and subjectively chosen quantitative data (how many times an article is downloaded, how often the author is cited, and so on) is suddenly called quality only revealing what should remain a state secret: complete ignorance of the core of the quality concept. Using the term impact factor, and by impact they probably mean positive impact on a discipline, is not relevant. The metrics may look precise but they are loaded with subjective assumptions and classification shortcomings. What I want to say really is that several of the recommendations of your article are desirable but others are not realistic. In the technologized consumption religion of today innovation is used as a synonym for improvement and added value to consumers, citizens and society. Innovation has not earned its status through constructive white magic performance alone but also through destructive black magic. When an innovation adds genuine value and service the new is no doubt a great driver. But breakthrough innovations are far between and they cannot just be speeded up exponentially. Avoiding black magic innovation is just as important to prevent and solve financial crises. References Bagelius, N., & Gummesson, E. (2013). In R. J. Varey (Ed.), Humanistic marketing. New York: PalgraveMacmillan. Ballantyne, D., & Varey, R. J. (2008). The service-dominant logic and the future of marketing. Journal of the Academy of Marketing Science, 36(1), 11–14. Barile, S., & Polese, F. (2010). Smart service systems and viable service systems. Service Science, 2(1/2), 21–40. Barnevik, P. (2011). Jag vill förändra världen (I want to change the world). Stockholm, Sweden: Bonniers. Boddy, C. R. (2011). The corporate psychopaths theory of the global financial crisis. Journal of Business Ethics, 102(2), 255–259. Grönroos, C. (2011). Value co-creation in service logic: A critical analysis. Marketing Theory, 11(3), 279–301. Gummesson, E. (2008a). Extending the new dominant logic: From customer centricity to balanced centricity. Journal of the Academy of Marketing Science, 36(1), 15–17. Gummesson, E. (2008b). Quality, service-dominant logic and many-to-many marketing. The TQM Journal, 20(2), 143–153. Gummesson, E. (2009). The global crisis and the marketing scholar. Journal of Customer Behaviour, 8, 119–135. Gummesson, E., Lusch, R. F., & Vargo, S. L. (2010). Transitioning from service management to service-dominant logic: Observations and recommendations. International Journal of Quality and Service Sciences, 2(1), 8–22. Maglio, P. P., & Spohrer, J. C. (2008). Fundamentals of service science. Journal of the Academy of Marketing Science, 36(1), 18–20. Maglio, P. P., Kieliszewski, C. A., & Spohrer, J. C. (Eds.). (2010). Handbook of service science. New York: Springer. Mele, C., Pels, J., & Polese, F. (2010a). A brief review of systems theories and their managerial applications. Service Science, 2(1/2), 126–135. Mele, C., Russo-Spena, T., & Colurcio, M. (2010b). Co-creating value innovation through resource integration. International Journal of Quality and Service Sciences, 2(1), 60–78. Rideau, F. -R. (2002). Government is the rule of black magic. London: The Liberty Conference. Schumacher, E. F. (1973). Small is beautiful: Economics as if people mattered. London: Blond & Briggs. Vargo, S. L., & Lusch, R. F. (2008). Service-dominant logic: Continuing the evolution. Journal of the Academy of Marketing Science, 36(1), 1–10. von Hippel, E. (1976). The dominant role of users in the scientific instrument innovation process. Research Policy, 5(3), 212–239.
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Journal of Business Research
Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis” Evert Gummesson ⁎ Stockholm University School of Business, SE-10691, Stockholm, Sweden
a r t i c l e
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Article history: Received 1 December 2010 Received in revised form 1 September 2012 Accepted 1 October 2012 Available online xxxx Keywords: Entrepreneurship Government Regulation Corruption
a b s t r a c t This commentary reacts to an article by Hausman and Johnston advocating innovation and entrepreneurship as keys to solving the current global financial crisis published in this special issue. The commentary is a valuable resonance board for my own ideas that, in some respects, deviate from those of the authors. I start from a partially different paradigm than the authors, as my theoretical platform is a new science of marketing and service that emerged during the 2000s. I find many of the suggestions logical and thoughtful, but primarily academic and US-centric. Will they work in practice, and especially on a global scale? I think the suggested solutions will work under certain conditions, but the world is imperfect and the necessary conditions are often absent. For example, the article shows confidence in the ability of governments to regulate and control and of research to contribute with more advanced metrics. Here I have doubts. I also find economic and management disciplines require new aspects for proposed solutions to work. Among these new aspects are the lack of genuine corporate social responsibility, growing corruption and crime, and the role of financial leaders whose behavior opened a new research field called “corporate psychopathy.” © 2013 Elsevier Inc. All rights reserved.
1. Introduction The Hausman/Johnston article advocates the urgency of stimulating innovation. The article is an excellent review of what innovation may mean in the context of the current financial crisis and offers a mind-boggling wealth of statistics and empirical research from scholarly literature and media reports. The article reflects the thinking of economics and conventional business and management methodology and theory, but not new theory and day-to-day practice. My career is fifty-fifty business practice and academic research in marketing and service management, meaning that I enter the text through a different door than you. My prime interest is the gap between theory and practice, and between thinking, decision-making, implementation, and results. My theory is the frontline of marketing and service research. I also draw on my interest in scientific methodology and on whatever experience or thoughts I have from fields not covered by my research themes. As the article says, innovation is a driver of the economy. Therefore, innovation deserves special attention in a global financial crisis, but more importantly, as you point out, innovation should occur continuously to prevent crises. But is innovation the driver or just a driver? Is innovation the white magic and cure-all—or is innovation black magic, too? Does innovation necessarily offer better value to society?
⁎ Tel.: +46 8 7531434. E-mail address: [email protected].
I had not expected my commentary to be so long. Despite differences in the perception of the global crisis and its causes and remedies I am grateful to you for forcing me to consider the issue and take a stance. I could not do so without your article as a sounding board. This commentary is a follow-up to an earlier article, “The global crisis and the marketing scholar,” published in a European journal (Gummesson, 2009). The next sections present my current theoretical stance, offer my comments to some overriding issues, and then proceed with my reaction to the last section of your article called “Recommendations to stimulate increased levels of innovation”. My recommendations for an alternative agenda conclude this commentary. 2. My theoretical platform: a new science of marketing and service My comments reflect the lenses of three long-term research themes that all intend to help us better understand and serve society and the market, and create value for citizens, consumers and businesses. This research, unknown territory to economists and the mainstream business and management disciplines, constitutes the new science of marketing and service. The themes are: ▪ Service-dominant (S-D) logic. In S-D logic the issue is not goods versus services as these two and other inputs, like software and knowledge, always appear in combination. You mention product(s) 33 times and service(s) 4 times with products and services as two distinct categories. In contrast the new science of marketing and service
0148-2963/$ – see front matter © 2013 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.jbusres.2013.03.025
Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025
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proposes value and service (in the singular) as the focal points. Value is assessed and actualized by the customer (value-in-use). As a consequence S-D logic defines a supplier's offering as a value proposition. Suppliers do not do something to customers as if customers were passive (operand) resources; suppliers do something with customers as customers are also active (operant) resources. The supplier and the customers, as well as intermediaries, shareholders, employees and others in a network of interactive relationships, co-create value. Co-creation consists of both independent action by a supplier or a customer (one-party), interaction between customers and suppliers (two-party), and interaction within a broader network (multi-party). In the same vein Mele, Russo-Spena, and Colurcio (2010b) “…explore the understanding of innovation as a value co-creating process or resource integration within networks of actors…” (on S-D logic, see further Ballantyne & Varey, 2008; Grönroos, 2011; Gummesson, Lusch, & Vargo, 2010; Vargo & Lusch, 2008). ▪ Service science. In the beginning of the 2000s, IBM introduced the long-term service science program to stimulate innovation and improvements of services systems, considering their complexity and importance for the development of a “smarter planet”. Although S-D logic emerged from academe and service science from business practice, they found these two publics shared the same concerns. One result is that S-D logic is the foundational philosophy of service science. For service science, the focus is on interdisciplinary research and education in service, especially bringing knowledge from business schools together with schools of technology (see further Maglio & Spohrer, 2008; Maglio, Kieliszewski, & Spohrer, 2010). ▪ Many-to-many marketing. Many-to-many marketing is an approach to marketing addressing the complexity of contemporary markets and based on network theory. Many-to-many marketing is the next generation of relationship marketing and other relational applications with relationships, networks, and interaction in focus and describing, analyzing and utilizing the network properties of marketing. In doing so, complexity, context and change emerge at the fore in an attempt to design theory on a higher level of abstraction, yet rooted in market realities. Customer-to-customer (C2C) interaction is particularly topical today. Although absent in conventional microeconomics market typologies and marketing management, the importance of C2C marketing is not new. Through the innovation of the Internet, mobile communications, social media and wikis (collaborative websites), C2C interaction now stands out as a major power in the market. Many-to-many marketing has close affinity to S-D logic and service science, as well as to more general approaches based on systems theory, such as the viable systems approach, VSA (see further Barile & Polese, 2010; Gummesson, 2008a, 2008b; Mele, Pels, & Polese, 2010a). In the new science of marketing and service, customers obviously exhibit fundamentally different roles than in traditional marketing, service management, and economics. An established division of customers in marketing theory is between business customers in business-to-business marketing (B2B) and consumers in businessto-consumer marketing (B2C), although B2B and B2C are increasingly dealt with as interdependent. The word customer appears 5 times in your text and consumer 9 times and my conclusion is that you mainly have consumers in mind. Starting in B2B markets, Eric von Hippel of MIT studied the role of business customers in innovation processes. In his first study of 111 scientific instrument innovations, he found that “… 80% of the innovations judged by users to offer them a significant increment in functional utility were in fact invented, prototyped and first field-tested by users of the instrument rather than by an instrument manufacturer” (von Hippel, 1976). His continued research elaborates further on the customer's role in innovation and also considers consumers. Just as suppliers, customers are always operant resources and co-creators.
“The marketing concept” existed as the foundation of marketing management for at least 50 years. The marketing concept states that suppliers should put the customer in focus and find and satisfy customer needs and wants. Customer orientation is in opposition to the supplier-centric view privileging the notion that a market is driven by production and technology and controlled by suppliers, with customers reduced to mere operand resources. But even with a customer-centric view, the operationalization of supplier behavior shifts only slightly, and consumers remain operand or perhaps semi-operant resources. Your article and the references you rely on, are therefore, incompatible with the new science of marketing and service. 3. Comments to your text Here are comments to a series of statements in your text: ▪ “… Increasingly, innovation will come from co-creation between technical and business people who can interface effectively with users and understand users' needs…”. Co-creation between technical and business people who have an interface with consumers is narrower than co-creation in manyto-many networks. ▪ “Our thesis is that companies who are innovative, who provide products desired by consumers, and effectively commercialize these innovations contribute to a strong economy that can more effectively weather failures in other economic elements.” ▪ “Businesses who can harness this innovative intensity will be the survivors. Innovations can no longer be managed as ‘silos,’ tucked away in corporate, university, or government research labs, in incubators, or within venture capital funded entrepreneurial start-ups.” I agree about the silos, but “harness” may be understood in at least in two ways. First, and in my experience the most common meaning, is to take control: How do suppliers manage customer relationships; how can they own customers; and how do they force customers to do as they wish? Second, and more realistic and more futures-oriented questions are: how do firms pick up what is going on and find a niche in the market; how can they influence the niche to some extent; how can they be smarter than the competitors in co-creating the future with customers; and how can suppliers avoid doing things to customer instead of doing things with customers? ▪ “Firms can utilize this data [from social media] to uncover unmet needs and determine what consumers are looking for in the products they buy.” Social media offer new opportunities as firms can observe C2C interaction but also participate and measure certain behavior. As you point out elsewhere the open source model allows innovation to come from numerous people spontaneously or through organized crowdsourcing; the Linux operative system and Wikipedia are such examples. ▪ “America's sophisticated marketing, distribution, sales, and customerservice systems have long been the tools that translated invention into innovation, thus creating wealth for firms and society…” Numerous working service systems are in operation, but as the IBM experience indicates, service systems, in general, are very far from satisfactory. A case in point is health care consisting of interaction in complex networks of working and non-working subsystems. ▪ “…what the country needs are better MBAs and an extraordinary willingness of its consumers to try new things … such ‘venturesome consumption’ is a vital counterpart to the country's entrepreneurial business culture.” Yes, no doubt MBAs should be trained more adequately. But why should consumers volunteer to help companies, which they often distrust, so that executives can get higher bonuses and become
Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025
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even richer? I find the call for more “venturesome consumption” to some extent abusive to consumers. 4. Improvements through planned innovation and follow-up metrics Innovation and entrepreneurship are often bunched together, but as you also explain they come in many shapes. An innovator contributes with something novel but an entrepreneur is required to implement innovations in the market. He or she is sometimes but rarely the same person. The innovator is usually not a street-smart, aggressive, customer-oriented, and results-driven doer. The entrepreneur does not need to be an innovator but must recognize the opportunity offered by innovation. You seem to have a lot of faith in the planning of innovation, education, and government incentives. Consider these aspects of innovation: ▪ “Skunk works” lurk in a secret corner of the big company. Engineers and designers see a potential in something that management has not authorized, maybe even forbidden. But they still live on. Skunk works can become a success—Saab's launching of the first mass-produced passenger car with a turbo engine is a case in point—but failures occur as well. ▪ Serendipity means that you are looking for one thing and find another. Instead of showing disappointment you turn the question around: You didn't find what you were looking for but what can you do with what you found? The successful 3M innovation, Post-it (the little sticker that can easily be removed without damages), is an example of serendipity. They were looking for the strongest glue possible—and ended up with the weakest possible! ▪ The authors refer to Schumpeter's famous strategy of “creative destruction”. The question is when the time is ripe to destroy something. Railroads and streetcars were closed down in favor of passenger cars, trucks, subways, and airplanes, only to be reopened and new ones to be constructed a few decades later. Skyrocketing energy prices and the environmental impact on air, water, health, and safety had entered the stage. In my interpretation creative destruction means the reconfiguration of roles even if total destruction may occur at times. Railroads today are high-speed connections between major cities thus competing with airlines at the same time as railways are feeders to airports. ▪ Planned obsolescence is built into the design of a product and a marketing strategy is destruction to the benefit of the supplier but not to the benefit of the customer. Cell phones and computers may technically function for decades but they have become fashion products representing lifestyles. New software with miniscule added technical value, even just cosmetic changes that demands more memory capacity is continuously introduced to replace perfectly functional existing software. You mention the need for broader and longer-term metrics than short-term profit and loss accounting. You do not refer to the past 20 years of efforts by both scholars and practitioners to create the balanced scorecard and other solutions for that very purpose. The core characteristic of the balanced scorecard is a mixture of financial and non-financial metrics, each compared to a target: the identification of a few relevant financial indicators, in particular how the company looks to shareholders, measuring how customers experience the company, indicators of the efficiency of employees and internal business processes and indicators of learning and growth with special bearing on long term development and innovation. Eventually the non-financial measures should translate into money. Much criticism has been raised against the balanced scorecard and its implementation. In my experience the criticism is primarily a token of the difficulty, even the impossibility of measuring a company's short term and long term success with simple quantitative metrics, and refusing to recognize the complexity and how that
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could be handled in a practical setting. You share an over-reliance on the blessings of extensive metrics when you quote “You get what you measure” as an absolute truth. You even refer to a recommendation to measure discontinuous innovation. Breakthrough innovation is about the unheard-of and unplannable and how can the unknown be dealt with in advance? 4.1. US, European or global perspective? The article offers a US baked cake with a global economy glazing. Even if people keep chanting that the economy is global they live their daily lives in local economies—and empathy is limited. My perspective is national first and European Union (EU) second. Although I make efforts, my knowledge and empathy is not sufficient to make me claim I think like a world citizen. The current economic crisis may very well be triggered by the overly innovative and risky mortgages (subprime loans) in the US. But the financial and economic system of the world is not a system but a network of subsystems, individual actions, political decisions and happenings spawned by a clutter of rational and irrational, primitive and sophisticated, and honest and criminal driving forces. No economists, business people, politicians, or institutions like the UN or the World Bank, has a comprehensive view of its complexity. Here are a few words from Europe to add to the US perspective. The EU is a mega alliance with half a billion inhabitants in 27 independent member states, where people speak 23 official EU languages and another 35 minority and immigrant languages. In a few years another 100 million may be added if Turkey becomes a member. EU will then be twice as big as the USA but only half of China and India. Its currency, the euro, is not used by all member states, among them the United Kingdom. Two of the smallest but wealthiest nations of Europe, Norway and Switzerland, have not applied for EU membership. In 2010, only two of the EU members fulfilled the minimum requirements of economic performance for membership. A special EU crash program saved Ireland, at least temporarily, but still in 2012 Spain, Greece and others were in the waiting line. The EU has a special fund, the EFSF (European Financial Stability Facility), in 2010 worth US$60 billion, to support nations in distress. The scary thing is that no one has the knowledge required to control the effects of such a fund. Financial markets are increasingly complex and the effect of macro-type interventions are difficult to trace even in retrospect. The final outcome is affected by sudden events, by mounting problems reaching a tipping-point followed by a collapse, manipulation by individuals and organizations, both by supposedly legitimate ones and by individual and organized corruption and crime. Since financial markets are now essentially deregulated and global, they operate 24/7. “Money” is bought one second and sold the next through computers that never sleep. Implicitly and explicitly your article promotes a US corporate and academic view, which is disputable and does not deserve the status of a general and global paradigm. The view includes the following values: ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪
only big companies count only growth counts only profits count only growing stock prices count short term over long term innovation over improvements of the old free markets over regulated markets private enterprise over government operations.
This commentary addresses some of these values. As a crude approximation with many variations between nations, big companies account for 1% of all businesses of a nation, but for 50% of private employment and revenue. The remaining 99% of all companies embrace one person, one family, or a small organization. Most of the small
Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025
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ones don't want to grow. They don't want to be quoted on a stock exchange. They don't want to be global. They want to be citizens in their town and be in direct control of their business. In highly populated countries like Bangladesh and India with a low average income, family businesses led by women have been made possible through micro loans, an innovation by Muhammad Yunus and the Grameen Bank. Unfortunately irresponsible banks and loan sharks offer fake micro credits and lure poor people into traps. The former CEO of ABB, Percy Barnevik, who now heads the aid organization Hand in Hand, compares this micro loan bubble with the subprime mortgage bubble in the US. He states that genuine micro credits are only effective if coupled with training and coaching of the new entrepreneurs (Barnevik, 2011). Following this strategy Hand in Hand is aiming for the creation of 10 million new jobs through small firms. Some operations, however, need big companies; a Boeing 747 or an Airbus Super Jumbo cannot be produced on a small scale. But others, such as the neighborhood plumber, the corner florist, and the local medical center, do not improve customer service and value by becoming bigger and global. Both big and small can be ugly if badly handled; both can be beautiful if well handled (Schumacher, 1973). And: innovation comes both from independent individuals, small organizations, and huge corporations. Even if huge, no business today is a self-sufficing economic unit, not even giants like Boeing and Airbus. A company is best described as a complex network of numerous interactive relationships between both big and small firms. 4.2. Both individuals and corporations need to be responsible citizens According to Rideau (2002) “All creation stems from the principles of white magic…So as to understand the world, we must learn to untangle the tree of white magic from the parasite lines of black magic that surround it…”. Corporate social responsibility (CSR) and long term sustainability or short term profit maximization—white versus black magic—that is the question. For want of a CSR culture no laws, regulations, patents, courts, or police forces can make companies engage in innovation that contributes to the welfare of a nation. Companies and even business school professors seem to think that the corporate mission is selfish maximization of profits without consideration of the societal context within which they work. The reader may remember the words of super-broker Gordon Gekko in the 1987 movie Wall Street: “The point is, ladies and gentleman, that greed … is good. Greed is right. Greed works. Greed …captures the essence of the evolutionary spirit. Greed in all its forms—greed for life, for money, for love, knowledge— has marked the upward surge of mankind…” Yes, Wall Street was a movie and fiction—but today the fiction has turned reality. The idea is that you can do anything however destructive as long as the law does not prohibit your activities and can send you to prison or in its more pragmatic interpretation: as long as the risk of getting caught is minimal. The idea is of course immature and savage. As an individual you are expected to be a good and honest citizen and take care of your family, say hello to your neighbor, work, pay taxes, and not jaywalk. But then comes the transformation. You form a company and all of a sudden your sole responsibility is yourself and profit maximization. If the corporation grows, a battalion of lawyers assists in dodging laws and regulations and public relations firm spin stories about the corporate brand. To please the public the corporation donates money for a good cause. As Rideau (2002) continues: “Black magic always wins in appearance; you will always see it dominate the established institutions, glorified by formal rites and astonishing shows.” Examples of innovation are found in so called “creative finance” and “creative accounting”. As epitomized by the spectacular cases of Enron (doctoring electricity markets and the price of its shares) and Ernie Madoff's collapsed Ponzo scheme (a pyramid game) where
people lost their pensions, creative can be a fancy term for deliberate fraud. Without the ethical dimension, creativity is destructive. Extreme greed has become the number one driver for an increasing number of executives, corporate boards, and shareholders. The global bonus epidemic is a financial variant of AIDS/HIV, and a vaccine or cure has not been found. Executives demand bonuses even when no causal link can be found between their actions and the profits, and even when their company is bankrupt and sustains on temporary state subsidies. An example is the exuberant bonuses of the former CEO of the European electricity supplier Fortum, a primarily stateowned and partial monopoly with 1.6 million customers. For a few years, with result mainly stemming from external events and increased electricity prices of a manipulated international “electricity exchange” and presented as “world market price”, these bonuses gave its CEO ten times his salary. He may have done a good job in other ways but that is what should be expected within his already inflated salary. The robber baron from past centuries is back. Robber baron designates a businessman or banker who uses questionable practices to become rich. A robber baron economy with unlimited greed attracts psychopaths and cleoptocrats. In Russia today's oligarch in its most corrupt version consists of politicians and bureaucrats of the former communist nomenklatura who use their network to steal state property and smuggle fortunes to offshore tax havens. Theories of “corporate psychopaths” are providing explanations to the financial crisis that has not been explored in economics or management before. The volatility of business—shorter term and anonymous ownership, more mergers and acquisitions, switching between employers to boost one's career, etc.—has kept growing during the past decades. The outcome is lack of social control in organizations opening up for psychopaths to maneuver their way to top positions and destroy formerly respectable corporations. Psychopaths suffer from an incurable illness characterized by lack of empathy, mythomania, extreme greed, an urge for power, but also an unusual drive to achieve their goals. In this process they often display unusual charisma and charm and their behavior can easily be mistaken for outstanding entrepreneurship and leadership. The financial sector attracts psychopaths more than other sectors (Boddy, 2011).
5. Comments to the article recommendations At the end of the article you present “…recommendations necessary to spur innovations that can improve company and national performance.” I find a lot of the recommendations sensible, but I also find footprints of rhetoric typical of academics, bureaucrats, and politicians. Here are my reactions, somewhat differently grouped than in your list.
5.1. Real knowledge—or just symbolic reality and sorcery? The recommendations open with a quotation from US ex-president Bill Clinton saying that what matters most for the future of a nation is knowledge. Let me add a quotation from Hamlet (Act II, Scene ii): Polonius: What do you read, my lord?Hamlet: Words, words, words. Clinton may well be right but he commits a common sin: he does not explain what he means by knowledge. He shares this sin with both academics and politicians who claim that society is knowledge or information based. You quote research that claims that more information is now generated in one year than in the previous 5000 years. Is this really information that can be turned into useful knowledge or merely a tsunami of noise that you have to protect yourselves from not to get drowned?
Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025
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In my view society is not knowledge-based; its base is words, numbers, images, and sound. The base then consists of symbolic representations of certain dimensions of the real thing—but they are not the real thing. Media reports are received by a great deal of the general public as one-liners and sound bites rather than coherent explanation of a phenomenon. Let's consider a recent and highly controversial innovation that represents a discontinuity in information and knowledge management: The leader of WikiLeaks, the Australian Julian Assange, is an innovator and entrepreneur. WikiLeaks popped up from nowhere in 2007. Assange is different and doesn't fit in any pre-designed box. He couldn't have been innovated by politicians, bureaucrats, or professors but he presents a quantum leap in information transparency. What legislators, government agencies, courts, academic researchers, investigative journalists, and private citizens have tried to come to grips with and seldom succeeded has suddenly been made open to a global audience. No wonder that governments, politicians, bankers, CEOs, and others fear what may fall out of their secret closets. Another innovation and infrastructure, the Internet, has made the leaks possible. The brave whistleblower in a company or government, like Daniel Ellsberg in the 1960s who made the Pentagon papers on the disinformation about the Vietnam war public, worked for many years to get the existing media publish them. WikiLeaks can make findings globally public in seconds without anybody's permission and at a negligible cost. Whistleblowers disturb and destroy corrupt systems; they are loved and hated and they have to look forward to future harassment. A lot of people live in the exposed systems and fear that their lives or careers will fall apart. Would those who felt safe when committing financial frauds that contribute to the global crisis have felt as safe if WikiLeaks had been around at an earlier stage? Shortly after the crisis started, WikiLeaks revealed secret bank accounts and money laundering through the large Swiss private banker Julius Baer and were instrumental in puncturing the Icelandic financial bubble by leaking confidential documents from the Kaupthing bank to the government which took immediate action to stop the bank. Assange has been accused of sexual harassment and when this article was written he was wanted through the Interpol. People can ask themselves: Are the accusations true or are they a planted “plumber job” to stop the leak by scandalizing its front figure? Whatever the outcome, Assange's private life cannot stop the WikiLeaks concept now. The new idea of mass-leaks through advanced information technology has being taken over by many others. Whereas perhaps some information should stay secret, what goes on with the citizens' money behind the closed doors of high-profile financial institutions certainly needs to be made public and the institutionalized cheating needs to be exposed and put to a halt. The shabby dealings of the financial sector, including banks owned by organized crime, the whitewashing of drug money where even ordinary banks turn a blind eye, and the finance of terrorist activity, also influence the world crisis. Business schools and economists are not aware of the impact of crime and corruption. Numerous statistical sources are used in public life and presented as evidence although the reliability of these sources is limited. A problem with statistics, especially of the macro type, is that definitions vary between countries, years, and companies and the definitional shortcomings jeopardize comparison. Numerous errors stem from the sources: how representative are the data, how correct are they, and what was the quality of the data collection process? And most importantly: Do governments and others who provide the data make an effort to be impartial and objective or do they have a hidden agenda, a purpose of public relations and lobbying to publish certain data and draw inferences from this data to favor a certain goal? You also refer to opinions from leaders in government, non-government organizations, education, and industry as evidence, as hard facts. They are what you say in the first place: opinions.
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5.2. Here is a case illustrating “real reality” versus representations of reality I went to another eye-surgeon for a second opinion on my eye disorder. I had brought the records and the advanced OCT (Optical Coherence Tomography) picture from the hospital. OCT is a true technological innovation and a huge step forward from blurry blackgrey-white X-rays, once a revolutionary innovation. Still my new surgeon just glanced at the picture. “Aren't you going to study the picture,” I said. “No,” he replied. “I am interested in your eye, not a picture of your eye.” Then he examined my eye for 40 min. He was of course right. A picture, even as advanced as the one I brought, is a still life and taken out of context. Although a picture may reveal something that can be difficult to discern even with microscopes and other instruments and thus be an aid, a picture can't replace an experienced doctor's collected explicit and tacit knowing. “ Doctors today are not trained to do a physical diagnosis,” he continued. “They take refuge to images and indicators from tests.” Medical indicators are approximate and crude operational definitions that represent a distribution around what's “normal”. Further, the reading of an indicator may change from one hour to another and misreading and processing errors occur. High-tech solutions are often overdone claiming that they are superior just because they are technologically intricate. Paying your bills on the Internet is claimed to be efficient and profitable for everyone. For some, the answer is yes (especially the banks); for others, no. In new service management theory, which includes relationships and interaction, each customer is an individual, not a grey mass. Every customer is now forced to learn to be a bank teller, having to invest in bank teller programs and equipment, while the bank keeps charging fees. A word, a number, or an image is not the real thing; they are idealized symbols and abstractions. Sometimes they may represent reality well and add to the ability to grasp a confusing world. Sometimes they are too crude to even pass for approximations and they misrepresent reality. Good theory rooted in reality is like a map guiding us through unknown territory. Bad theory like bad maps leads us astray. Good theory is explicit and can be communicated. Experience, intuition, and common sense may also provide good maps although as tacit knowing. In the wait for something that may never arrive— evidence-based, general, and complete theory—the compromise is mid-range theory based both on explicit theory and tacit knowing. Some of the future is reasonably predictable but a lot is not and therefore cannot be planned. Instead, by constant monitoring of a situation and its progress and being prepared to rethink and change direction, many changes and unexpected events can be handled. That is as far as man can realistically come leaving us with elements of risk and uncertainty. 5.3. Protection of intellectual property Recommendations: ▪ ”Ensure that the intellectual property of innovators is secure at home and abroad.” ▪ “Streamline patent application process to increase speed and enforce protection of patents.” To implement these recommendations would require negotiations with numerous countries with different laws and traditions, securing that the stronger parties, making survival practically impossible for small inventors who lack financial muscle, would not steal patents protect their rights. Citizens are not in a position to protect their interest against abusive patent-holders that maintain monopolies. And customers can also cause damage by illegally copying and downloading music, movies and books.
Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025
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The EU and the US host several bizarre patents laws lobbied by companies. For example, the laws may allow patent-holders to “own” certain cells of a person's body; they let a foreign company patent indigenous seeds in India and demand royalties from poor farmers (17,000 suicides per year are reported caused by foreign companies driving local farmers bankrupt); when Monsanto's gene manipulated seeds blow from one farm into another in Canada, the contaminated farm was ordered to pay royalties (Monsanto lost after long fights and court trials); and currently the EU plans to limit consumer access to minerals and vitamins in herbal medicine, an issue lobbied by the pharmaceutical industry because herbs cannot be patented (read: monopolized) by them. Sometimes formulas and designs can be kept secret so that they cannot be found out even through reverse engineering. Finally, a different protection issue can be added: building brands. Today brand management is a major dimension of marketing. Strong brands help to create customer loyalty and long-term relationships in the market and hold back competition. Despite efforts to protect rights, estimates show that the amount of counterfeit goods and pirated copyrights in world trade grew from US$100 billion in 2001 to $250 billion in 2007 and has kept growing. Internet sales account for most of the increase in counterfeit goods. To make the recommendations on protection of intellectual rights credible and find out if they are implementable you should offer an estimate of how many years this process would take, how much resources are need in manpower and money, and the likelihood of at least partial success. 5.4. Research and education Recommendations: ▪ “Invest in basic research.” I agree, but who should do the research: universities, private firms, individuals, or all of them? Here is an example. Apart from being a highly sales, growth and profit oriented corporation, IBM has a history of engaging in long term basic research. Five IBM researchers have won the Nobel Prize in Physics and more could very well have become laureates, for example Benoit Mandelbrot for the discovery of fractal geometry. The IBM Service Science program cooperates with more than 500 universities, business schools and schools of technology and also with other private companies. Universities used to differ from high schools as the teachers, the professors, lectured on their previous and ongoing research and stimulated reflection and dialog. Today, undergraduate university education involves junior lecturers, “textbook managers”, who guide students through a standardized and increasingly IT-based package. Research techniques with heavy reliance of statistics that dodge real world complexity are especially dominant in economics but also in disciplines like marketing. One should think that the Nobel Prizes given to scientists vouch for reliable findings. That is not the case. Alfred Nobel stated in his will that the prizes should go to “…those who have made the most important contributions to mankind.” According to its statutes, the Nobel Prize in Economic Sciences could be awarded anyone in management, economics, law, sociology, and other disciplines that have made a major specific contribution to the understanding of an economic issue. The Prize has been colonized by economists and is often erroneously referred to as the Nobel Prize in economics. In 1997 financial economists Robert Merton, Harvard Business School, and Myron Scholes, Stanford University, shared the prize” for a new method to determine the value of derivatives.” Soon afterwards, following the East Asian and the Russian Financial Crises, their highly leveraged fund lost US$4.6 billion in less than four months and failed. The Merton/Scholes case is one of several examples of the risks that consumers are exposed to when they
invest their savings in a retirement plan—even if established by Nobel Prize winners. ▪ “Increase education in science and math by recruiting more teachers and retooling existing teachers.” Natural sciences are important but so are parts of social sciences and the humanities. When launching service science IBM found that schools of technology had no education in service management and service systems where the user and consumer was in focus. To instill a culture of social responsibility, the humanities play a lead role. Neither technological and natural science, nor economics and management disciplines, can take on this role. ▪ “Encourage students to major in marketing, entrepreneurship, and related disciplines to help guide the creative process around consumer problems and facilitate commercialization of innovations.” Marketing gets space in business schools. Production or operations management exists in some business schools, but not in others. The business school curriculum is filled with peripheral support systems: organization theory is big, accounting is big and finance gets bigger and bigger. In business schools based on the economics tradition, operations management does not exist and marketing may reflect only microeconomics. But even if marketing has a place, what kind of marketing is taught? The textbooks are usually structured by means of 1960s theory dressed up in new cases. The developments that I referred to earlier concerning service, complex systems and many-to-many marketing, are not even mentioned, much less integrated into theory. Corruption and global organized crime does not exist in management and economics education. Take any day of the week around the year and read the top business newspapers and journals and you find that almost every issue has one or more articles on these subjects. The black economy varies from 10 to 90% depending on the country; nobody really knows and the definition is fuzzy (Bagelius & Gummesson, 2013). ▪ “Develop new courses in creativity, innovation, and entrepreneurship that focus on the tools and skills necessary for innovation and commercialization.” ▪ “Develop non-degree programs to teach entrepreneurs and business managers to be more innovative.” A tricky question is how you teach creativity, innovation, and entrepreneurship. Who can teach these skills and can they be taught through theory, models, textbooks, and classroom exercises? Who has the knowledge to educate not only young students but also experienced entrepreneurs and business managers to be more innovative? The most important lessons may concern attitude and cases of both successful and failed efforts. ▪ “Provide a federal tax credit to encourage employers to make continuing education available to existing employees to maintain their skills and introduce them to new tools, new theories, and new philosophies.” This is only possible for big companies. Small companies cannot afford to spare their employees for courses; their training is on the job. 5.5. Access to innovative resources Recommendations: ▪ “Steer market actors towards innovation-related investments. This includes investors and venture capitalists.” How can a government or research fund tell what is innovationrelated but in retrospect? They are not seers, although they like posing as such. ▪ “Avoid the pressure for relatively quick returns that comes with venture capital money.”
Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025
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Yes, bring back the long term and sustainable thinking of the dedicated industrialist. The trend away from operations to cash flow, from producing something of value to earning money on money with no genuine value added needs to be reversed. Finance is only a lubricant and the lubricant cannot replace the engine. The engine of business is built by production, marketing, and consumption; you have to have something to sell and someone must buy your output. The original mission of a stock exchange was to provide firms with capital and to assess their daily economic value. The recent incident with the innovation Facebook is an example of how the stock exchange lost its serious mission and instead offers an opportunity for owners—who don't need the money—to expand the company—to boost its stock price and then exit before the price goes down.
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productivity do not emerge from a specialized department but from efforts of all resource-contributing members of a system. ▪ “Invest in new tools, including information technology, connectivity, computing power, genomics, and nanotechnology.” Such investment is certainly called for but only forms part of business success. As service science preaches: both innovation and improvements of existing service systems are needed. They both exist in a complex social reality of many-to-many networks where human behavior reigns. ▪ “Put aside goals of efficiency in favor of ‘green thumb leadership’ to encourage risk taking in innovation. Thus, efficiency measures are used for factory farms (current business operations) and greenhouses or experimental gardens for innovation.”
5.6. Incentives to innovation Recommendations: ▪ “Foster incentives to ensure continued growth in innovation and new technologies.” ▪ “Accelerate activities, such as innovative ideas, for which barriers may have been too high otherwise through tax incentives or grants.” High taxes can kill but low taxes do not alone stimulate progress. To give tax incentives and grants has shown to be capricious; to provide infrastructures as you recommend may be the best option: ▪ “Ensure ubiquitous broadband Internet access as a means to develop innovative ideas and as a vehicle for the diffusion of innovations.” Provide not just broadband. For example, well maintained and upgraded roads, public transportation and postal service are just as important infrastructures. Amazon.com could not do without service systems through which their parcels can be dispatched. When infrastructure is provided, see what happens. The past twenty years of developments of broadband and mobile networks have inspired customers and citizens develop the use of them. You also mention three types of incentives that have been introduced in the US: ▪ “…broadening access to the research and experimentation tax credit to make it easier for companies to deduct many costs associated with developing new technologies.” ▪ “…funding increases for science and technology (to over $100 billion) at the National Science Foundation, the Environmental Protection Agency, and the U.S. Departments of Energy, Agriculture, Interior, Commerce. ▪ “…innovation think tanks to tackle risky innovations too great for a single private firm, … [and] help technologies bridge the chasm between basic research and commercial development.” Such incentives may work at times but may also end up in frustration. The outcome of the incentives is hard to predict and the effect may be hard to establish even in retrospect. And people tend to use loopholes and fraud to profit from subsidies which is a major headache in the EU. 5.7. Management initiatives Recommendations: ▪ “Management efforts to stimulate the economy need to both reflect the current drivers of economic growth and creative destruction.” I agree but sometimes destruction of the existing seems to become a goal in itself; a reasonable trade-off between what should be kept and what should be destroyed must always be established. ▪ “Invest in the skills and abilities of all workers.” Investing in skills is a strategy of quality management. Quality and
Day-to-day improvements should be equally important for the success of an economy and as vaccination against severe crises. Destructive computer viruses and other threats such as unauthorized access to information and phishing with stolen identities have become a new market for crime. Legislation and law enforcement is not up to the task; they are far behind the real world innovations. If Bonnie and Clyde had lived today they would not have robbed banks and lived a hunted life on the road. They would have led a comfortable and fairly risk-free life at a desk and a computer with a vulnerable Microsoft operative system. Incremental improvements somehow sound less sexy than flashy quantum leaps but they constitute the day-to-day efforts following the quality management strategy of continuous improvements, above all famed for leading to the sustaining success of Toyota. Most innovation takes place within an established paradigm. Society consists of a bouquet of service systems that need discontinuity and quantum leaps as well improved quality and productivity of existing service systems and cheaper, more integrated and seamless user-friendly and hassle-free systems. The discontinuities are far between but they may provide a new infrastructure for society, most recently the Internet and mobile communication. When launched, radically new products or systems are rarely functional and the development is very much driven by customers. Still many companies deny the problems and unload their costs on customers. A recent one is the premature launch of the Vista system by Microsoft. Is the problem lack of innovation—or lack of an ability to implement the new? My feeling is that large warehouses of unexploited innovation already exist but a shortage of entrepreneurs and supportive culture and infrastructure prevent us from exploiting them. To stimulate more research and control the research even tighter is no solution. But can people be educated to become entrepreneurs or be selected for their entrepreneurial future potential? No! The definition of both innovation and entrepreneurship is that neither is foreseeable. Still bureaucrats, politicians, and research funds believe that they can plan the unexpected and the yet not known. The process of exploiting ideas and their launching can include instances of planned action. But the planned action is a means to sort things out and is never the driver. ▪ ”…commercialization, diffusion, and use of inventions is of more value to companies and societies than the initial bright spark of engineering or technical brilliance.” Why more; neither could do without the other? What could Edison have done without the invention of the light bulb and Ford without the invention of the car? ▪ “Attract, motivate, and retain individual innovators in companies.” To do so, an organization has to accept deviant behavior. Not many organizations do that in practice; too often they just offer such rhetoric.
Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025
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6. My recommendations These recommendations are focused on what may be actionable in a real world of imperfections and shortcomings. Society has to do away with conventional and wishful thinking of politicians, bureaucrats, and academics if not rooted in economic and managerial reality. Recommendations by economists can be especially misleading. Whether called macro or micro, economics rarely steps further down than to statistical data on industries. The bulk of economics and its theory are neither based on the daily action and interaction of business leaders and employees, nor on the behavior and role of customers, citizens and other stakeholders in a business network. Theory from management and business disciplines such as marketing is based on the behavior of consumers, organizations, and markets: ▪ Focus both on innovations as quantum leaps and as day-to-day continuing improvements. An innovation may offer a radically new paradigm but the boundary is fluid; accumulated incremental improvements may very well lead up to a tipping point where they turn into something novel and discontinuous. A software program, a website or a laptop that lacks quality in detail such as ease of navigation and security will not contribute to value-in-use even if radically innovative. ▪ Provide infrastructure and invite citizens, consumers, and corporations to dance on new stages as well as on old stages that are well maintained and perhaps expanded. Better infrastructure improves business opportunities. A widespread belief that governments and education can entice innovative action from a distance by offering a flood of Hamlet's “words, words, words” is an impediment to action. ▪ Liberate universities from the current and global bureaucratic, financial, and political overkill. Innovation and entrepreneurship are not initiated by plans, metrics, and rankings but by support that releases untamed forces. ▪ In the name of scientific rigor, economics and management/business research based on quantitative studies of simplistic causality are awarded and its researchers are promoted at the cost of other skills that are more urgent for developing future theory and understanding. What is gained in theoretical rigor is lost in relevance and validity. Instead, business schools should develop proficiency in applying systems theory, network theory, case study research, and other approaches that address real world complexity, context, and dynamics. ▪ Encourage the use of experience, intuition, common sense and other expressions of tacit knowledge alongside with academic and scientific research. ▪ Accept that small companies without growth and profit maximization ambitions are as important as large companies and that both gain from a life in symbiosis. ▪ Foster the idea of contributing to us as citizens through a balanced mix of planned government policies, regulations, and free market competition. Send the uncivilized and inhuman robber baron mentality to the grave. ▪ Abandon the naive idea that a society dominated by natural sciences, technology, smarter marketing, and courts of law can create value for citizens; they need the humanities, too.
▪ Plainly put: metrics are good when they are useful. Increased sophistication, even promoting that everything must be measured whether in practice measurable or not, based on the dogma that numbers are the truth, is a waste of brainpower. Imperfect, arbitrarily and subjectively chosen quantitative data (how many times an article is downloaded, how often the author is cited, and so on) is suddenly called quality only revealing what should remain a state secret: complete ignorance of the core of the quality concept. Using the term impact factor, and by impact they probably mean positive impact on a discipline, is not relevant. The metrics may look precise but they are loaded with subjective assumptions and classification shortcomings. What I want to say really is that several of the recommendations of your article are desirable but others are not realistic. In the technologized consumption religion of today innovation is used as a synonym for improvement and added value to consumers, citizens and society. Innovation has not earned its status through constructive white magic performance alone but also through destructive black magic. When an innovation adds genuine value and service the new is no doubt a great driver. But breakthrough innovations are far between and they cannot just be speeded up exponentially. Avoiding black magic innovation is just as important to prevent and solve financial crises. References Bagelius, N., & Gummesson, E. (2013). In R. J. Varey (Ed.), Humanistic marketing. New York: PalgraveMacmillan. Ballantyne, D., & Varey, R. J. (2008). The service-dominant logic and the future of marketing. Journal of the Academy of Marketing Science, 36(1), 11–14. Barile, S., & Polese, F. (2010). Smart service systems and viable service systems. Service Science, 2(1/2), 21–40. Barnevik, P. (2011). Jag vill förändra världen (I want to change the world). Stockholm, Sweden: Bonniers. Boddy, C. R. (2011). The corporate psychopaths theory of the global financial crisis. Journal of Business Ethics, 102(2), 255–259. Grönroos, C. (2011). Value co-creation in service logic: A critical analysis. Marketing Theory, 11(3), 279–301. Gummesson, E. (2008a). Extending the new dominant logic: From customer centricity to balanced centricity. Journal of the Academy of Marketing Science, 36(1), 15–17. Gummesson, E. (2008b). Quality, service-dominant logic and many-to-many marketing. The TQM Journal, 20(2), 143–153. Gummesson, E. (2009). The global crisis and the marketing scholar. Journal of Customer Behaviour, 8, 119–135. Gummesson, E., Lusch, R. F., & Vargo, S. L. (2010). Transitioning from service management to service-dominant logic: Observations and recommendations. International Journal of Quality and Service Sciences, 2(1), 8–22. Maglio, P. P., & Spohrer, J. C. (2008). Fundamentals of service science. Journal of the Academy of Marketing Science, 36(1), 18–20. Maglio, P. P., Kieliszewski, C. A., & Spohrer, J. C. (Eds.). (2010). Handbook of service science. New York: Springer. Mele, C., Pels, J., & Polese, F. (2010a). A brief review of systems theories and their managerial applications. Service Science, 2(1/2), 126–135. Mele, C., Russo-Spena, T., & Colurcio, M. (2010b). Co-creating value innovation through resource integration. International Journal of Quality and Service Sciences, 2(1), 60–78. Rideau, F. -R. (2002). Government is the rule of black magic. London: The Liberty Conference. Schumacher, E. F. (1973). Small is beautiful: Economics as if people mattered. London: Blond & Briggs. Vargo, S. L., & Lusch, R. F. (2008). Service-dominant logic: Continuing the evolution. Journal of the Academy of Marketing Science, 36(1), 1–10. von Hippel, E. (1976). The dominant role of users in the scientific instrument innovation process. Research Policy, 5(3), 212–239.
Please cite this article as: Gummesson, E., Commentary on “The role of innovation in driving the economy: Lessons from the global financial crisis”, Journal of Business Research (2013), http://dx.doi.org/10.1016/j.jbusres.2013.03.025