In Defense of “Closed” Innovation

Posted on October 17, 2024 by Eugene Ivanov

This image was created with the help of Microsoft Designer

Remember the famed Bell Labs, once a powerful R&D center for the telecommunication equipment company Lucent Technologies? Bell Labs’ researchers are credited with the development of radio astronomy, the transistor, the laser, the Linux operating system, and the programming languages C and C++. Nine Nobel Prizes (eight in Physics and one in Chemistry) have been awarded for the work conducted at Bell Labs.

And yet, all the intellectual might of Bell Labs did not prevent Lucent from consistently losing its market share to Cisco, a company that did almost no internal research.

Remember Palo Alto Research Center (PARC), which for 30 years has been part of Xerox Corporation? Like their Bell Labs’ peers, the PARC researchers had all the reasons to be proud of their accomplishments. Laser printing, Ethernet, GUI, the computer mouse are just a fraction of what has been conceived and developed at PARC.

But despite receiving lavish R&D investments from the parent company, PARC had failed to create significant value for Xerox and its shareholders.

What unites Bell Labs and PARC? In retrospect, we can say that the inability of two innovation powerhouses to provide a competitive advantage to their parent companies signaled the sunset of the era of closed innovation and the dawn of the era of open innovation.

What Went Wrong with Closed Innovation?

For an eternity, internal R&D has been viewed as a strategic asset and indispensable competitive tool for any large firm. Because internal R&D was expensive, the large and powerful used it as a weapon to protect their market position from the less funded competitors. If you were big, you could innovate and win; if you were small…well, bad luck.

And then, new entrants to the market began showing up en masse. What was remarkable about them is that they conducted little or no basic in-house R&D. Instead, they preferred to cooperate with other, often smaller, companies engaged in more basic research.

Three major factors have contributed to this trend. First, the abundance of highly-trained people with college and post-graduate degrees, fueled by the increasing internal mobility of the workforce along with the growing inflow of high-quality professionals from abroad. Knowledge and experience have ceased being the exclusive property of a few; they began belonging to “everyone,” prompting the Sun Microsystems co-founder Bill Joy to remark: “No matter who you are, most of the smartest people work for someone else.”

Second, the web and the host of telecommunication technologies have dramatically reduced the cost of starting and running a business. As a result, small and nimble startups have begun relentlessly challenging large and inflexible incumbents.

Finally, the very nature of innovation has changed. Modern innovation occurs at the cross-borders of different disciplines, and no company, no matter how large, can afford hiring researchers from many different fields. Now, the most disruptive innovation happens when people with different but complementary skills and experiences put their heads together—regardless of where they work.

By publishing his now-classic 2003 book, Open Innovation: The New Imperative for Creating and Profiting from Technology, Prof. Henry Chesbrough was the first who said it loud and clear: the era of closed innovation was over.

Does Internal R&D Have a Future?

It would be a huge mistake, however, to think that the end of “closed innovation” means the end of internal R&D. Quite to the contrary: internal R&D will play a crucial role in any firm’s innovation process. What has changed, though, is that internal R&D has stopped being closed innovation; it is now internal innovation.

I like to argue that open innovation is not a special type of innovation; it is part of a single “innovation body.” Open Innovation serves as a branch extending over the corporate walls to reach out to the diverse pools of external talent. But it can be successful only if it’s organically connected to the other side that is utilizing the innovation potential of the company’s employees.

In many respects, it’s internal innovation, not open, that represents the foundation of the corporate innovation strategy. Only internal innovation teams can identify and properly formulate problems facing the firms. Only internal innovation teams can fully understand the value of incoming external solutions to select those that make corporate sense. Only internal innovation teams can ensure the successful integration of external information with the knowledge available in-house.

It’s only at this special midpoint of the problem-solving process — at the stage of generating potential solutions to the problem — that open innovation is superior to internal.

Firms, therefore, should consider internal and open (“external”) innovation as different, complementary tools in their innovation management toolboxes. There is no sense in discussing which tool is better; each should be used at its proper time and place.

Building Internal Innovation Networks

Some firms organize their internal innovation activities in the form of internal innovation networks (IINs).

In addition to supporting open innovation, there are at least four important benefits IINs can bring to any firm.

First, IINs provide a communication platform between different corporate units that in many firms often have no institutional space to discuss strategic issues. By providing such a platform, IINs increase the efficiency of the decision-making process and reduce the need for face-to-face meetings, something that any large firm with many units spread around the globe can certainly appreciate.

Second, IINs help foster the culture of collaboration, bringing together corporate units traditionally involved in the innovation process, such as R&D and Marketing, with those that not (Business Development, Finance, Legal, etc.).

It’s useful to remember that the notorious “Not-Invented-Here Syndrome” manifests not only as a rejection of external knowledge and expertise but also as resistance to intra-company collaboration, when individual units are often reluctant to share their findings with others. By breaking internal silos and promoting intra-company collaboration, IINs enhance the overall innovation potential of the firm.

Third, IINs can be used to find solutions to problems individual units have failed to solve on their own. Again, such problem-solving could be especially effective in multinational corporations with numerous units spread over geographic and time zones. People in different units, often brought together as a result of M&A, rarely communicate with each other and almost never meet face-to-face. Yet, often one unit may possess specific knowledge that is desperately needed — and can be immediately implemented — in another.

Connecting such “dots” through IINs can result in significant savings of time and money for internal R&D.

Finally, IINs help identify the firm’s emerging thought leaders, who — especially in junior positions and in geographically remote units — often remain unnoticed to the corporate leaders. IINs provide a voice to every employee regardless of their rank and location in the firm. Besides, the very format of online communication is especially attractive to younger workers playing an increasingly important role in the global marketplace.

In summary, when developing a viable corporate innovation strategy, firms must create a balanced portfolio of internal and external/open innovation programs. Yet corporate innovation leaders should always remember that the full potential of any innovation program can only be realized by the concerted effort of properly connected people within firms.

Or, putting this differently, the power of corporate innovation comes from the strength within.

Posted in Innovation, Internal Innovation Networks | Tagged , , , | Leave a comment

The “French Perfume” Innovation

Posted on October 7, 2024 by Eugene Ivanov
This image was created with the help of Microsoft Designer

As someone who was born and grew up in the Soviet Union, I know a thing or two about the shortage of foods and goods.

Our “out-of-office” life was a perennial chase of the hard-to-get stuff, which was pretty much everything you’d need to live above a mere subsistence level.

This has instilled in my compatriots and me one simple habit: buy something first, while it’s still available, then decide whether you need this something or not. This approach was especially useful with imported items, which were rare, often completely unknown, and whose value was therefore even more difficult to assess in advance.

One such item was “French perfume,” and I’m using the quotation marks here deliberately. When buying a precious bottle — on the black market or through a friendly connection — you didn’t have the luxury of knowing the brand of the future acquisition. It was just it, a bottle of “French perfume.” Pondering if the intended receiver of the item, your wife or girlfriend, would prefer Chanel, Guerlain, or Magie Noire, was completely pointless: you could buy only what you were offered.

On the positive side, your loved one wouldn’t care much, either; she would just be delighted with the gift. She would also appreciate your effort to please her — and be proud of your ability to get things done.

Today’s corporate innovation reminds me of this “French perfume.”

Volumes have been written about the 3-Horizon Model of Innovation that places innovation projects into incremental, “adjacent,” and transformational buckets, each implying a different time horizon and funding level. A complementary, equally useful, classification of corporate innovation projects into market-creating, sustaining, and efficiency innovations, each corresponding to a specific stage of business model development, has also been proposed.

And yet, time and again, our corporate innovation leaders can’t provide a working definition of what innovation means for their organizations. It’s just that, “innovation.”

Innovation charters, a formal document outlining the major aspects of the organization’s innovation strategy, are almost unheard of. Attempts to introduce portfolio management of innovation projects are often met with a deadly fire because “structure” supposedly kills innovation. Worse, many corporate innovators sincerely believe that every innovation must be “disruptive,” while all other types of it are for losers.

The lack of understanding of the various types of innovation inevitably leads to confusion about the available innovation tools. A simple idea that for each innovation objective, there must be a specific innovation tool most suited for this objective, sounds almost foreign. Instead, one-size-fits-all fads follow each other like ocean waves hitting the corporate shorelin— hackathons, skunkworks, innovation labs, corporate accelerators, corporate venture funds — with inevitable complaints of low innovation returns coming later. “Idea generation” campaigns are omnipresent, confusing minds, draining resources, frustrating participants, and resulting in pretty much nothing.

Steve Blank has a shrewd definition for our corporate innovation process: innovation theater. My friend Andy Binns at Change Logic likes to use an equally colorful term: innovation zoo. I humbly hope that my term, “the French perfume innovation,” will become as popular as Steve’s and Andy’s.

What is to be done?

My solution is simple, if not quite revolutionary: education.

We need to get back to the drawing board and help organizations understand the very basics of innovation: definitions, typology, infrastructure, processes, metrics, and incentives. We need to create a set of short narratives (“Innovation101,” so to speak) giving organizations a place to start, in a practical and intuitive way.

And we need help from academic researchers studying innovation.

Don’t get me wrong. I’m not calling on them to stop deepening our theoretical understanding of the innovation process. Instead, I’m urging them not to forget that by producing knowledge that the innovation practitioners can’t use, they make their future work less meaningful. Nor am I saying that the “new models of innovation” are completely useless. What I’m saying is let’s learn first to use the models we already have.

Posted in Innovation | Tagged , | Leave a comment

Do You Know the Age of Your Child?

Posted on October 5, 2024 by Eugene Ivanov

The image was created with the help of Microsoft Designer

How often, when taking an over-the-counter drug, do you read the following note on the label?

“Adults and children 12 years of age and over: one tablet; children under 12 years of age: ask a doctor.”

Pretty often, I guess.

And I’m sure that the fact that children should take drugs differently from adults doesn’t surprise you.

But what is so magic about the age 12 in this particular case? What if the age of your child is 11 and a half years? 11 years and 11 months? Will you “ask a doctor” or take a risk of giving your little one the much-needed relief?

Welcome to the world of pediatrics, a branch of medicine that deals with medical care for children!

Conventional definitions of a “pediatric patient,” a scientific term for a child, bracket the childhood into the age period ranging from the birth to 18 years (although some professional organizations in the United States extend the age limits of pediatrics from fetal life until age 21).

Yet it’s clear that while such a range may make legal sense, it’s too broad to be useful in medical practice. As one report puts it, it’s ridiculous to compare “a 34-week-old premature infant” with “a 17-year-old high school football player.”

To address this problem, more precise age definitions have been introduced, dividing “pediatric patients” into neonates, infants, toddlers, preschoolers, school-agers, and adolescents. However, with so wide variations in individual rates of child development — not to mention cases of physical or mental retardation — placing specific age numbers doesn’t really help.

There is one parameter, though, that seems reasonable, at least for the purposes of dosing drugs: weight. For example, San Mateo, California, County’s medical guidelines define pediatric patients as someone weighting less than 80 pounds. But again, with the spread of childhood obesity reaching epidemic proportions, a child’s weight can be grossly misleading.

We therefore urgently need better predictors of children’s real, biological, age. Let’s call them biomarkers of childhood.

We need to identify and validate a series of biological markers — naturally-occurring molecules collected from easily available body fluids, such as urine and saliva — to follow stages of a child’s physiological and mental development.

These markers will tell us how our child progresses through his or her childhood; these markers will eventually tell us that our child has reached adulthood.

I see at least two areas where biomarkers of childhood can be useful.

First, and the most obvious, is medical care. Although the need for such biomarkers has been long recognized, this area of biomedical research is still in its infancy (no pun intended). This negatively affects both pediatric care as well as child-specific drug development.

But why restrict biomarkers of childhood to medical use? Why not to ask more general questions about the biological differences between children and adults?

What makes your child a child? And although answering this question will require contribution from many different fields, biomarkers of childhood could provide objective and measurable input. I easily see their application in the juvenile justice system, as the most obvious example.

Given the enormous amount of information needed to create a comprehensive list of biomarkers of childhood, it’s clear that this job is well beyond capacity of one single person or even single organization.

The most reasonable venue is to use crowdsourcing that would allow collecting data points from large groups of people around the world.

I therefore call on any party interested in child healthcare and well-being — whether commercial, government, or non-profit — to sponsor a crowdsourcing campaign aimed at creating a comprehensive list of biomarkers of childhood.

I volunteer to work with any non-profit organization to help define specific parameters of such crowdsourcing campaign and to choose an appropriate crowdsourcing platform.

Posted in Crowdsourcing, Health Care | Tagged , , , , , , , | Leave a comment

Disaster by Design

Posted on October 5, 2024 by Eugene Ivanov

Why We Should Stop Pretending that We Don’t Want Illegal Immigrants in This Country

This image was created with the help of Microsoft Designer

As an innovation manager, I regularly remind my clients that the most important part of the problem-solving process is to correctly define the very problem that they want to solve.

The sad reality is that many organizations—small and large, corporate and non-profit—fail to identify the root cause of their problems. Instead, they immediately focus on finding something—anything!— that may look like a solution.

To me, this is equivalent to taking Tylenol to relieve a headache even before knowing what caused it: hangover, mild cold, chronic migraine, or advanced glioblastoma.  

But if you ask me: “Who are the worst offenders of the ‘problem-first’ rule?”—my answer will be immediate: our politicians. Day in and day out, in multiple venues available to them, our elected representatives demonstrate a remarkable inability (unwillingness?) to define the problems they’re trying to solve in our name and on our money.

One of the glaring examples of this syndrome is the “problem” of illegal immigration. 

I don’t even want to repeat the horror stories you can hear these days about the mortal danger faced by our country from illegal immigrants. The topic has become so hot that it has reached the top of the most important issues of this year’s presidential election. 

Solutions to the problem proposed so far by our politicians don’t strike me as serious, but regardless of which type of solution you prefer—providing illegal immigrants with the path to naturalization or deporting them all—you’re likely to agree that our immigration system is broken.

Is it?

Legal Jobs for “Illegal People”

The truth is that our immigration system works exactly as it was designed—and it was designed to provide a steady flow of people who enter the country illegally.

Let me explain.

But first, let’s agree that most people entering the United States, whether legally or illegally, come here not to enjoy our freedoms, landscapes, historic sites, or food; they come here to work, to earn a living for themselves and their families.

Illegal immigrants, people who enter the country without proper documents, represent an essential—and irreplaceable—part of the US working force. Why? They take on jobs that few Americans would be willing to take due to low pay and poor working conditions. 

Here is a chart that presents the share of undocumented workers by industry:

Illegal immigrants they might be, but they do perfectly legit work here, eh?

But the best part of having these undocumented workers—and the reason why we want them here—is that they cost less than American citizens or legal immigrants. Illegal immigrants work, pay taxes, and spend money here, but they don’t receive benefits, like Social Security or disability pay, to which Americans or legal immigrants are entitled. 

Besides, undocumented workers have no legal rights. As a result, they don’t complain, don’t strike, and don’t ask for more lest they be exposed and potentially deported. Ideal, completely hassle-free employees! 

No other country in the world—I mean, among those that can be called civilized—has access to such a wonderful pool of cheap labor force. I would argue that illegal immigration represents a competitive advantage that the US economy maintains over the economies in Europe, Canada, Australia, and Japan.

Sounds too far-fetched? Here is what experts say.

In a paper published earlier this year, Wendy Edelberg and Tara Watson of Brookings Institution argue that the entry of new migrants into the U.S. in 2022-2023, a large part of them being undocumented, has ensured a healthy growth of the US economy even as the Fed sharply raised interest rates to bring down inflation. 

Indeed, in 2023, the U.S. was the fastest-growing G7 economy, and Edelberg and Watson insist that at least part of this surprising strength can be explained by the steady inflow of new workers from abroad, an economic stimulus largely unavailable to other G7 countries.

Other economists agree. According to the Morgan Stanley Chief US Economist Ellen Zentner, illegal immigration’s impact on the labor market was a “big positive for the economy” and a key factor behind the soft landing narrative. Zentner, too, believes that illegal immigration was the reason why, in 2023, the U.S. had such fast economic growth, while inflation and wage growth decelerated. 

So, far from poisoning the blood of our country and sucking up its limited resources—as some US politicians claim—illegal immigrants may well have saved us from recession.

Slaves, Postdocs, and NCAA Athletes

I’d further argue that using illegal immigrants to boost the growth of the American economy has its historic precedent: slavery.  

As pointed out by David Reynolds in his book “America, Empire of Liberty,” forced black labor was a powerful engine of the American economy, especially in the South, in the 17th and 18th centuries. Cheap and deprived of elementary rights, slaves helped alleviate a chronic labor shortage perennially plaguing the colonies since the very beginning.

Slavery is long gone, but the reliance on cheap labor lives on, with undocumented immigrants from Central and South America playing essentially the same role as their African predecessors centuries ago.

And if you look around, you can see shadows of slavery, understood as using pools of cheap workers as a means of creating economic value, in some quite unexpected corners of American life.

Take, for example, our science, indisputably the world’s best by any standard. True, we spend a lot of money on research, but what sets American science apart from other countries is our unique institute of postdocs.

Postdocs are scientists with freshly acquired PhDs who come to academic labs for what is euphemistically called “postdoctoral training.” But trust someone (me) who used to be a postdoc in his prior life: training is the last thing you get when “doing a postdoc.”

Postdocs work, and work hard; they’re true workhorses of American academic science, spending endless hours in the lab on weekdays, weekends, and holidays. And they deliver: while comprising less than 70% of non-faculty researchers in US universities, postdocs contribute to almost 90% of scientific publications coming out of these institutions. 

And what about postdoctoral pay? The US state that pays postdocs the highest salary, $67,000 per year, is Oregon; the lowest is Florida: $41,000 per year, which is $19.54 per hour (actually less, given the number of hours postdocs spend at work). Not much for someone who often graduated from a top school and then spent 5-7 years as a grad student, to get a PhD, the highest scientific qualification available in the U.S.

And if you wonder…Yes, you’ve guessed it right: international postdocs, who make up 57% of the country’s STEM postdoc population and who are shown to be more productive than US citizens and permanent residents, receive lower pay than the latter. 

What motivates postdocs? A hope for a bright future. They believe that by spending another 5-7 years in “postdoctoral training”—working hard and subsisting on a salary way lower than their real earning potential—they will secure a permanent academic position or a highly paid job in industry.

So let me repeat: it’s the institute of postdocs—highly qualified, motivated, and cheap workers—that provides American science with a competitive advantage that helps it maintain its leading status.

Or, take NCAA athletes. Remember that until 2021, the NCAA athletes were not compensated for their participation in national tournaments, and this is even though in 2021 alone, the NCAA generated $1.15 billion in revenue.

Like their postdoctoral brethren, NCAA athletes were motivated by a hope: that by kicking their asses and risking their health—for free!—they’ll get noticed by recruiters and be drafted by professional leagues, which will secure their financial well-being for the rest of their lives. In the meantime, the NCAA bosses were gobbling up billions. 

Sure, I understand the difference between slaves, illegal immigrants, postdocs, and NCAA athletes. However, I encourage you to see what they all have in common: they are parts of the unique to the United States system of exploiting pools of cheap (or free) labor to create economic value, and to provide the American economy with a competitive advantage.

A Simple Solution That No One Wants

Did you know that the existing immigration laws were written about 60 years ago and haven’t been seriously updated for the past 34 years? Doesn’t it strike you as odd that our elected representatives have spent decades doing nothing to fix the system they call “broken”?

And this is even though a simple solution to the problem has been lying in plain sight all along: to criminalize hiring illegal immigrants, to make it illegal to employ people without proof of work authorization.

(This approach that can be called “demand-side criminalization” is conceptually similar to the one used by some U.S. states (Nevada, for example) to curb prostitution. This is when, instead of going after sex workers, law enforcement was charging clients seeking their services.)

Do you think many employers would risk criminal prosecution for hiring illegal immigrants? Do you think that, facing a threat of such prosecution, they won’t find ways to check the legal status of their workers? You bet.

I also bet that such a simple solution will never be implemented, for our lawmakers perfectly understand that this would kill the golden goose of cheap labor our businesses enjoy.

For the same reason, I’m pretty sure that the idea of massive deportation of illegal immigrants won’t take off, either.

The latest stats show that there are about 11 million undocumented immigrants in the country. The logistics of such a monumental law enforcement operation are completely obscure, and the proponents of the idea don’t rush to explain to us how the illegals would be found, where they’d be sent, and which specific law enforcement agency (or agencies) will be in charge. 

Then, there is the stubborn topic of money. The best estimates suggest that each deportation would cost about $13,000 in current dollars. The total cost of the proposed deportation would thus amount to $143 billion. Who’s going to pay for that, using the favorite rhetorical question of this election season?

But most importantly, the experts are clear about the economic consequences of such a move. According to Adam Posen, the president of the Peterson Institute for International Economics (PIIE), the proposed mass deportation will result in a major depletion of the labor supply. Two things will happen then. First, shrunken labor typically means slower economic growth. Second, it would increase the price companies will have to pay to attract workers, which will cause inflation. (The PIIE experts project that the deportation of around 1.3 million undocumented workers could lead to a cumulative three-year increase of inflation by 1.3%.) A recession is likely to follow.

Are We Ready for a Solution?

Sometimes, the inability—or, to be more precise, the unwillingness—to properly define a problem is rooted in a painful realization that solving it would lead to consequences much worse than the problem itself.

This is how I see the problem of illegal immigration. We want to solve it, but we also want to keep illegal immigrants coming, no matter what we may say to each other in the heat of a political discourse.

That’s why I consider the problem of illegal immigration unsolvable, at least in the short term.

Sure, some palliatives could be implemented. For example, we must realize at last that the majority of people coming to this country are looking for a job rather than for a political asylum, as we tend to believe. We therefore should adjust the quota of immigration visas accordingly, giving more of them to the former and fewer to the latter (essentially following the pattern of Canada and Australia).

We can also lower the educational requirements for the people coming to the country on temporary working visas; not everyone needs a college degree to work in construction or hospitality.

But we should also remember that by giving legal rights, however limited, to people who used to be “illegal,” we’ll inevitably increase the cost of their labor. This will diminish their economic attractiveness to businesses and therefore deprive the American economy of a benefit it has become so addicted to.

Are we ready for that?

Posted in Uncategorized | Tagged , , , , , , | Leave a comment

Steve Jobs, Henry Ford, and Faster Horses

Posted on May 14, 2024 by Eugene Ivanov

This image was created with the help of Microsoft Designer

A solid consensus would seem to exist that customer feedback gathered through market research is a key to successful product innovation.

And yet, I’m surprised how often one can hear dissenting voices. Some people — usually those without hands-on experience in the innovation process — claim that paying too much attention to customers stifles innovation and reduces it to a mere incremental improvement of existing products (which these people consider anathema to the “true” innovation).

In support of their point of view, they love to quote Steve Jobs: “It’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.”

A plausible interpretation of this quote might be that had Jobs listened to his customers, Apple would still have been making incremental improvements to Apple-1.

Another supportive quote is attributed to Henry Ford: “If I had asked my customers what they wanted they would have said a faster horse.”

I remember reading a brilliant piece by Tristan Kromer, who provided an interesting twist to the Ford quote:

“If the customer asks for a faster horse, do not build a faster horse. Ask, ‘Why do you want a faster horse? What would you use it for?’ If the customer wants a faster horse to move cargo across town, a car might be a great invention. When the customer wants a faster horse to win a horse race, a car is a terrible invention.”

It was then when it hit me. I re-read Ford’s quote. Re-read it again, too: “If I had asked my customers…they would have said.”

Ford didn’t ask his customers! He simply assumed that all they wanted was a faster horse. And yet, he invented a car. Good for him!

It’s still unfortunate that Ford didn’t develop a habit of asking his customers what they wanted. I doubt that many of them would have said they wanted a faster horse. Most of them would have replied, as Kromer suggested, that they needed to move cargo across town.

And if Ford kept asking follow-up questions — which cargo, for which distances, at which speed — useful feedback would have inevitably emerged.

Who knows, had Ford talked to his customers, the first Ford truck — arguably the best Ford Motor Company’s invention ever — would have appeared earlier than 20 years after the first Ford car.

Curiously, in the 1930s, the Toyota Motor Corporation invented the 5 Whys technique, a simple but powerful approach to getting employee and customer feedback. I don’t want to sound obnoxious but had Ford, not Toyota, invented the 5Y, it might have been Ford, not Toyota, being today the second largest car manufacturer in the world.

Of course, one should understand the difference between two related, overlapping, yet distinct forms of customer feedback: customer wants and customer needs.

What focus groups produce is what the customer wants: a demand for a faster horse or a faster computer. It takes more time and effort — and more sophisticated market research tools — to identify customer needs behind customer wants.

True, people often don’t know that they want a product until you show it to them. But it is only after they realize that they need this product that they are ready to pay for it.

There is no innovation without customer feedback — either in the form of wants or needs.

And what about Steve Jobs? Read his quote again, too. Jobs didn’t like focus groups, arguably a messy tool for collecting consumer feedback. But he says nothing about other forms of market research. Did he loathe them all? I don’t know. Do you?

Regardless, a genius like Steve Jobs can afford to eschew proper market research and trust his guts. Feel yourself on par with Jobs? Go ahead and try to develop new products without doing market research first.

Just don’t be surprised if your innovation outcomes will be less impressive than Jobs’s.

Posted in Creativity, Innovation | Tagged , , | Leave a comment

The Fallacy of the “Fail-Fast-Fail-Often” Creed

Posted on May 2, 2024 by Eugene Ivanov

This image was created with the help of Microsoft Designer

As Lewis Carroll once said, “If you don’t know where you are going, any road will get you there.”

I recall this wisdom every time I listen to the gospelers of the “fail-fast-fail-often” creed. I suspect that the ease with which these guys accept failure — and then rush to celebrate it — stems, at least in part, from their inability to define success.

And if you don’t know what success is, every attempt is a failure. (Worse yet, as our politicians regularly show us, when you don’t know what you’re doing, every attempt can be hailed as a success. But I don’t want to go there.)

As Andrew Binns and Andreas Brandstetter write in Chapter 1 of the book that Andrew and I have recently co-edited, innovation starts with a clearly articulated goal, a North Star that lays out the firm’s strategic ambitions; it also helps guide its subsequent actions.

Success (and failure) is then defined not by a sheer number of the attempted tries but by the number of steps that bring you closer to the established goal.

As Andrew likes to say, it’s not about how often we fail, but how much we learn — and, unfortunately, one doesn’t guarantee the other. Many people and firms fail often — and repeatedly! — simply because they don’t learn from their previous failures. Nothing to celebrate here, if you ask me.

Speaking of learning. A 2019 paper in Nature examined the role of difficulty of training on the rate of learning. The paper shows that the maximum learning takes place when the optimal training accuracy (a measure of difficulty) is about 85% or, conversely, when the optimal rate of training error is around 15%. In other words, to learn successfully, one should be five times more right than wrong.

So much for failing often!

We ought to realize that many contemporary “rules” of the innovation process originate from the daily routines of Agile development. Sure, when you design a software product, you don’t have the time, nor money, to run extensive customer research for every imaginable feature. You run an A/B test instead, and — bingo! — in no time you know what the majority of the end users prefer.

In this case, yes, progress can be measured by the number of tested pairwise combinations — the more, the better. And the less time you spend on rejecting the inferior options, the better too. Dude, you “fail” faster, good for you!

But not all areas of innovation are like software development. In my previous article, I pointed out that in drug development, the ultimate proof that a candidate drug has clinical benefits (is a success, in other words) comes as late as in the Phase III clinical trial — and that to run a Phase III clinical trial costs about $1 billion.

Given that the failure rate of Phase III clinical trials exceeds 50%, do we have any reason to celebrate a failure worth a billion even if we learn from this failure?

Moreover, not all the areas of creative activity can even benefit from customer feedback.

Take, for example, creative writing. When writing a book, a writer can’t share its early versions with the future readers. No, he or she writes it to the very end, publishes it, and then — and only then! — gets an idea of whether the book is to be nominated for a Pulitzer or will begin collecting dust on the shelves of a warehouse.

There is another area of human creative activities that doesn’t measure success by the number of failures: experimental science.

As a former bench scientist, I’ll tell you how this works.

A scientist begins with formulating a hypothesis, which articulates his or her vision of a problem. The scientist then designs an experiment that tests the validity of the hypothesis. If the experiment confirms that the hypothesis is correct — always the preferred outcome, make no mistake! — the scientist formulates a new, advanced vision of the problem based on the newly acquired knowledge. And the process repeats.

If the experiment shows that the hypothesis is incorrect, the scientist returns to the drawing board and tries to formulate another, better hypothesis, the one that will get support in the next round of experimentation.

Sure, failures happen here too. But in this case, a failure is either a mistake in the experimental design or a human screwup in the implementation of a correctly designed experiment. A failure is an embarrassment, something you want to hide from your boss and colleagues, not to celebrate with the rest of the civilized world.

A good experimental scientist is a person who develops better, more perceptive, hypotheses; designs experiments that result in a 100% clarity about the correctness of the hypothesis; and makes few, if any, mistakes when running experiments. And, yes, a good experimental scientist celebrates successes, not failures.

Innovation managers can take a page or two from the science textbooks and place hypothesis-driven experimentation in the center of the innovation process.

By coming back to what Andrew Binns and Andreas Brandstetter wrote, we need a few things preceding experimentation.

First and foremost, we need an innovation strategy.

We also need innovation processes, metrics, training, and incentives.

This is what will make our innovation process predictable and repeatable, at least more predictable and repeatable than winning a lottery.

Posted in Health Care, Innovation | Tagged , , , | Leave a comment

Lost a Billion? Let’s Celebrate!

Posted on April 8, 2024 by Eugene Ivanov

This image was created with the help of Microsoft designer

As every popular topic, innovation is a powerful magnet for clichés — and, let’s face it, some of them suck.

For example, I’m not sure that mixing innovation and DNA is a good idea. Though I understand — kind of — what Clayton Christensen and his co-authors had in mind when writing about “ innovator’s DNA” (“…each individual…ha[s] a unique innovator’s DNA for generating breakthrough business ideas”), I cringe when I read that “successful innovation programs have a DNA consisting of seven elements.”

Dude, these days even toddlers know that DNA consists of only four elements!

Another one that rubs me is “celebrating failures.”

Sure, innovation requires a lot of experimentation, and experimentation results in failures more often than it ends up in success. Absolutely, we must accept failures, learn from them and try again, until we succeed. But why do we need to celebrate them?

In every language, in every culture, the word “failure” carries a negative connotation, and placing it in the same sentence with “innovation” makes no difference. By calling to celebrate innovation failures we might be announcing our belonging to a Secret Order of Innovators (those with a unique innovator’s DNA), but do nothing to advance innovation in places, still depressingly numerous, where the fear of failure keeps nipping innovation in the bud.

Besides, some innovation failures are so expensive that they give more reasons to mourn rather than to celebrate.

Take, for instance, drug development that still remains a highly unpredictable business.

The ultimate proof that a candidate drug has clinical benefits — meaning that it may be approved by the FDA as a therapy — comes as late as in the Phase III clinical trial. It was calculated that it costs about $1.3 billion to develop a new drug, and that 90% of these expenses (that is, $1.1 billion) represent the cost of Phase III clinical trials.

Do we have any reason to celebrate a failure worth a billion, given that the failure rate of Phase III clinical trials exceeds 50% (and even higher for cancer drugs)?

We’re not doing favors to innovation by treating it differently from other activities.

We live in a success-driven society. We should strive for success — and success only — be it an innovation project, a manufacturing process, or safety of our borders. We should work hard on decreasing the rate of failures in any of these activities — and, yes, we need to address the question of why drug development has become so inefficient and expensive.

And we should reserve celebration for those rare occasions when we succeed.

I’m even ready to consider this attitude an element of our innovator’s DNA.

Posted in Health Care, Innovation | Tagged , , | Leave a comment

Weighing on the weight-loss drugs

Posted on April 8, 2024 by Eugene Ivanov

This image was created with the help of Microsoft Designer

Let me tell you a little secret: I’m taking medications for my high blood pressure — and thanks to my doctor and the quality of the drugs he prescribed, my blood pressure is solidly under control.

I’m fully aware that my medications are not a curative therapy, a treatment that can completely eliminate a disease and prevent its recurrence. Nor are they a vaccine that has a lasting effect but may require periodic boosters.

I need to take my medications regularly, and if I stop, my blood pressure is likely to return to the previous, unhealthy level.

Could I do something to prevent this from happening? Sure. I can exercise and watch what and how much I eat. (Which I do.) The combination of a healthy diet and regular exercising may not completely eliminate my dependence on the medications but could allow me to reduce their dosage.

Is there anything unusual, surprising in what I’ve just said? I don’t think so: it’s Medicine 101 and pure common sense.

So, why then are we witnessing such a public outrage — with celebrities getting involved — at the fact that weight-loss drugs do not cause irreversible reduction in body weight?

What does science tell us?

Science tells us that by suppressing appetite and reducing food cravings, the new class of GLP-1 diabetes and weight-loss drugs (Ozempic, Wegovy, Zepbound, and Mounjaro) help people shed up to 20 percent of their body weight while they take the medications.

But once they stop taking them — because of the medications’ cost or side effects — the lost pounds come back.

However, if the people who stopped taking GLP-1 drugs exercised — regularly and vigorously — the weight reversal could be avoided or, at the very least, significantly reduced.

How is this any different from taking blood pressure drugs?

Ah! We’re told that the weight-loss drugs cause side effects, such as diarrhea and nausea. This is unfortunate, but every doctor will tell you that there are no truly effective drugs without at least some side effects. For example, high blood pressure medications may cause diarrhea and nausea too, in addition to occasional headaches.

We’re also told that they’re expensive. True, but the existing market is so vast that new weight-loss drugs keep entering the development pipeline. Sooner or later, the competition should (at least theoretically) result in cost reduction.

Finally, we’re told that overweight and obese people don’t need weight-loss medications at all. All they need to do, according to “experts,” is to keep a healthy diet and exercise. (“Instead of taking pills, better stop eating shit and hit the gym,” as a popular advice would put this wisdom in wording.)

This is not generally true. As a disease — and obesity is a disease — obesity has a strong hereditary component. Healthy diet and exercising can and will help but to an extent and not to everyone.

Besides, many people suffering from high blood pressure also got to this point by unhealthy life choices. Yet, I never heard anyone calling on them to “stop eating shit and hit the gym.”

Let’s face it: the real explanation for why some of us are having “a problem” with Ozempic & Co. is our obsession with body shape. But these days, instead of habitually shaming overweight and obese people, we began shaming those who try losing weight with Ozempic and Wegovy.

The danger here is that obesity may join the list of the so-called stigmatized diseases, such as lung and liver cancer, the diseases presumably associated with patients’ “bad behavior” (smoking for lung cancer and alcohol consumption for liver cancer).

Another example of stigmatized diseases are sexually transmitted diseases (STD), viewed by many as a personal problem, not a public health issue. (Sounds similar to the public perception of obesity to me.) As a result, funding for STD research has been declining for decades, which made STD more difficult to diagnose and treat.

Truly effective weight-loss drugs are a new phenomenon in our public life, so a certain level of excitement can be understood. But there is no need to inject the elements of a Jerry Springer Show in a discussion of how to treat a medical condition.

Let’s remember: Ozempic, Wegovy, Zepbound, and Mounjaro are drugs.

No less. But no more.

Posted in Health Care | Tagged , , , , , | 1 Comment

Drug Money

Posted on February 26, 2024 by Eugene Ivanov

This image was created with the help of Microsoft Designer

Comparing a book to The Bible says a lot about this book.

It points to the high impact it has on a particular field of knowledge and expertise. It also reflects an absolute trust the readers of the book have in its content — and its authors.

The Diagnostic and Statistical Manual of Mental Disorders, a book published by the American Psychiatric Association, is considered “the bible” of psychiatry. It sets the golden standards for diagnostics of psychiatric disorders and provides sought-after treatment guidelines.

Given its ability to broaden diagnostic categories and recommend which drugs should be prescribed, the manual plays a central role in the approval process for new psychiatric drugs and the patent extension for existing.

It is therefore crucial that the book’s authors are free of any “external” influence or conflict.

That’s why it was so shocking to learn that many contributors to the manual took money from the pharmaceutical industry.

Using open sources of financial information, a group of academic researchers has found that in the years preceding the publication of the latest version of the manual, 55 contributors have collectively received a total of $14.2 million of drug money.

The most common type of payment was for food and beverages followed by travel and consulting; however, in dollar amounts, the greatest part of contributions (more than 70 percent) was for research funding.

The investigative team has concluded that their findings “raise questions about the editorial independence of this diagnostic manual.”

To my taste, this is a remarkably restrained conclusion. The study reminds us of a seemingly small change to the criteria for attention deficit/hyperactivity disorder (ADHD) introduced in the 2013 edition of the manual. The change was expected to result in a considerable increase in the diagnosis of ADHD and the number of drug prescriptions.

Indeed, a 2021 review found convincing evidence of overdiagnosis and overtreatment of ADHD in children and adolescents.

Editorial independence? It’s a conflict of interest at its purest.

Spreading the Bets

If you ever spoke to a financial advisor, this is one thing you will surely remember: diversify your investments.

The pharma industry has certainly learned this lesson: it does diversify the range of recipients of drug money. Scientists are one category; another one are patient advocacy groups.

Patient advocacy groups (PAGs) are non-profit organizations dedicated to supporting patients living with a specific illness or health condition. As I wrote in my previous article, PAGs play an important role in various aspects of patient well-being:

  • They collect information about specific disorders (symptoms, diagnoses, treatment options, and latest research advancements) and share it with patients, caregivers, and the broader public.
  • They offer emotional support, peer-to-peer connections, practical guidance, and resources to navigate the challenges of living with a disorder.
  • They contribute to medical research by sharing patient experiences and facilitating data collection that helps improve care for the specific condition.

I also mentioned that implicit in the concept of patient advocacy is a belief that all the decisions made by PAGs are made in the interest of patients — and only patients — without being influenced by other considerations.

It was therefore troubling to read a recent report by Public Citizen, a consumer watchdog, revealing that in 2010–2022, 31 drug companies and their major lobbying group, Pharmaceutical Research and Manufacturers of America (PhRMA), have been providing money grants to major PAGs.

In particular, the American Heart Association (AHA) received $8.3 million from Pfizer, the manufacturer of Tafamidis, the most expensive cardiovascular drug ever launched in the United States. The American Cancer Society (ACS) received $6 million from AstraZeneca, $4.7 million from Merck, and $3.4 million from Pfizer, all manufacturers of expensive cancer drugs.

Why is this troubling?

With high drug prices remaining a serious — and growing — healthcare problem, PAGs are expected to push for the drug cost reduction for their patients.

Recently, they got an additional tool: the 2022 Inflation Reduction Act (IRA) gives Medicare the ability to negotiate drug prices with manufacturers.

One would expect PAGs to voice strong support for using the negotiation process to drive down the cost of at least most expensive drugs. And yet, both AHA and the American Cancer Society Cancer Action Network, an ACS affiliate, were both silent on this topic.

Was their reluctance to support the negotiation provision of the IRA a consequence of their receiving drug money? A question we’d all love to know the answer to.

(To be fair, not all recipients of drug money took the same position. The American Diabetes Association received $26.4 million from the drug industry; yet the group supported the $35 monthly cap on out-of-pocket costs for insulin included in the IRA.)

Funding the Regulator

Did you know that the Food and Drug Administration (FDA) collects the so-called user fees?

Those are monies that companies pay to the FDA when they apply for approval of a medical device or drug. Manufacturers also pay annual user fees based on the number of approved drugs they have on the market.

Supporters of the user fees argue that the adoption of the system in 1992 has allowed the FDA to streamline its operations and to significantly increase the speed of the approval process. For example, in 1987, it took the FDA 29 months to approve (or reject) a new drug; in 2018, this number was down to only 10 months.

What is concerning is that today, the user fees make up 46 percent (yes, 46!) of the FDA’s $7.3 billion budget — and 65 percent of the funding for human drug regulatory activities.

Think about this: almost half of funding for a government regulatory body comes from the entities this body regulates.

Are there reasons for concern? Experts believe there are. While the speed of the approval process has increased, so has the number of drugs with serious safety issues coming to light after the approval. It was reported that since the user fee act was approved, the number of such unsafe drugs has increased from 21 to 27 percent.

Is this increase a consequence of inevitable mistakes accompanying a speedy process? Or is it a reflection of a “softer” approach the FDA takes on its benefactors?

Another question we’d all love to know the answer to.

One thing is clear to me: if we want to decrease the influence of drug money in healthcare, the FDA budget would be the place to start. Finding additional $3.3 billion — the amount of money the FDA gets from the user fees — is a small price to pay for the safety of the American people.

Posted in Health Care | Tagged , , | Leave a comment

Losing the Edge: The State of United States Science

Posted on February 7, 2024 by Eugene Ivanov

This image was created with the help of Microsoft Designer

The United States is losing the race for global leadership in science and technology.

This is a major conclusion of “State of Science in America,” a December 2023 report by Science & Technology Action Committee (STAC). STAC is a non-partisan group of 25 science and technology leaders representing corporate, academic, and non-profit institutions and organizations.

Losing the Edge

The STAC report is based on a survey of nearly 2,000 professionals representing five sectors of the American economy: K-12 education, business, healthcare, STEM, and military/national security. Key findings of the report are:

  • The U.S. is perceived to be losing the race for global leadership in science and technology. Over 75% of respondents believe the U.S. is losing or has already lost this critical competition, and 60% say China will be the leader within five years.

Those who work in health care or in the military/national security are more likely to say the U.S. has already been overtaken by other countries, while those in STEM fields are more likely to say that the U.S. is losing ground.

  • The federal government is viewed as the primary driver of U.S. science and technology advancements.

A majority of respondents across all sectors and political identifications agree that federal funding of science and technology is vital and that federal government investment in science and technology is so important that it should be protected from budget cuts.

  • Nearly 80% of respondents (91% of Democrats, 79% of independents, and 69% of Republicans) are concerned about the growing public distrust in science.

More than 75% of respondents (89% of Democrats, 79% of independents, and 65% of Republicans) raised concerns about politicians discrediting scientists.

  • Respondents in every sector surveyed believe that the top obstacle to future scientific advancement in the United States is the quality of K-12 STEM education.

The other top obstacles are the abundance of red tape in the U.S. scientific research process, the lack of a national science and technology strategy, and inadequate funding for research and development.

The report puts forward the following recommendations:

  • Create a comprehensive national strategy for advancing science and technology innovation in the United States.
  • Foster additional coordination among the 20+ federal agencies engaged in science and technology.
  • Increase federal funding for science and technology from 0.7% to at least 1.4% of the U.S. GDP in the next five years.
  • Bolster STEM education at all levels, starting with K-12.

However comprehensive the STAC report might be, it’ll hardly change anything. In fact, it reminds me of another report, the one composed in September 2019 by the Council on Foreign Relations (CFR), a think tank specializing in U.S. foreign policy and international affairs. (I covered the report here.)

Written by a group of 20 experts and titled “Innovation and Security. Keeping Our Edge,” the report argued that after leading the world in technological innovation for the past three-quarters of a century, the United States was at risk of falling behind its competitors, mainly China — and this may have profound negative consequences for U.S. national security.

Characteristically, the CRF report pointed to the same problems threatening the U.S. leadership position in science and technology, such as insufficient federal investment in research and development (R&D) and poor state of the STEM education.

The fact that no progress has been made over the past five years is telling.

Will the STAC report trigger more action than the CFR?

Somehow, I doubt it.

Losing Trust

One finding in the STAC report especially troubles me: the growing public distrust in science.

Unfortunately, distrust in science is hardly something new. As a trend, it has emerged over the past 40 years and been specifically driven by conservatives. (The trust in science remains at rather steady levels among moderates and the liberals.)

For some time, distrust in science among the conservatives has been mostly confined to their skepticism about anthropogenic origin of climate change.

However, the COVID-19 pandemic has opened up new frontlines in this “‘war on science.” A December 2020 Pew Research Center report showed that while 84% of Democrats considered COVID-19 as a major threat to public health, only 43% of Republicans agreed.

The same “blue vs. red” divide has formed over such scientifically straightforward and seemingly non-partisan issues as wearing masks and COVID-19 vaccination.

Distrust in science naturally morphs in distrust in scientists. 60% of Republicans (compared to 23% 0f Democrats and 41% of Independents) believe that scientists should stick to their business and stay out of politics. 37% of Republicans think that scientists have already too much influence in public policy debates; only 9% of Democrats and 19% of Republicans share this point of view.

Writing on this topic in 2021, I predicted that the trend may result in increasing calls to “defund science,” both in Republican-controlled states and, worse, at the federal level.

Sadly, I was right.

Losing Money

It amuses me how differently we treat private vs. public R&D funding.

It’s common to call private R&D funding “investment.” An entry to Investopedia reads: “Why You Should Invest in Research and Development (R&D).”

Public R&D funding, however, is often characterized as an “expense” (or “spending”). Note that in the federal budget, R&D funding falls in the discretionary spending bucket. Investopedia defines discretionary spending as “a cost that a business or household can survive without, if necessary.” (Apparently meaning that as a country, we can survive without spending money on R&D.)

I can see where it comes from.

The principal metric by which the private sector measures the effectiveness of its investments is return on investment (ROI). Given that the industry spends most of its R&D money on short-term projects, ROI can be easily calculated. Your investment either works or not, but you know what happens to the money.

Not so with public R&D spending. Public money goes mostly to basic science, with the outcomes being uncertain for many years to come. Measuring ROI becomes tricky, if possible at all, creating an impression that there is no “return” on the money. So, no matter what happens to this money, the R&D funding is becoming an “expense.”

Worse, some call it “waste.”

Then, inevitably, fiscal conservatives begin “cutting waist.”

The Biden administration’s budget proposal for FY2024 calls for an almost 10 percent increase in funding for the National Institutes of Health (NIH), a major source of support for biomedical research.

In contrast, House Republicans suggest cutting NIH funding by eight percent. Characteristically, the biggest cut, 23 percent, is proposed for research on infectious diseases. This may sound like a sick joke at a time when the country is still recovering from the devastation of the COVID-19 pandemic.

Another major, three-fold cut — from $1.5 billion to $500 million — is handed to ARPA-H (Advanced Research Projects Agency for Health), whose purpose is to take on long-term/potentially high-reward projects not readily accomplished through traditional federal biomedical research. (The Cancer Moonshot initiative is an example.)

Losing Control

The conservatives seem to have developed a taste for cutting specific scientific programs they dislike.

Remember George W. Bush administration’s 2001 ban of federal funding for creating new human embryonic stem cell lines, a policy that wiped out the U.S. dominance in this promising area of biomedical research?

But the banning machine shows no signs of losing steam.

Last November, the Republican-led House of Representatives approved a ban on federal funding for “gain-of-function” (GOF) research, a research that involves the modification of risky pathogens in ways that can make them more harmful to people (under all proper regulations and safety measures, of course).

Critics of the ban argue that GOF studies are crucial to vaccine development and that due to its vague language, the ban could halt work on annual flu and COVID-19 vaccines.

Fortunately, the ban wasn’t approved by the Democratic-led Senate, so the banning game moved to the state level. Now, Wisconsin and Texas consider statewide GOF bans. Such a ban is already law in Florida, a curious development given that no GOF research takes place in this state.

Let’s get real. Given the depth of the partisan polarization in Congress over budget, there is no way for the funding for science and technology to be doubled any time soon.

Besides, does anyone believe that there is even a bit of a political will to deal with the complex issue of the quality of K-12 education, an issue that too gets politicized with a frightening speed? I don’t.

Sure, I can see the White House Office of Science and Technology Policy (OSTP) issuing a report or two that it’ll call strategic. Will these reports make any more difference than the STAC and CFR reports? No.

I predict the problems with science and technology in America will keep accumulating.

The only thing that could change that is either a spectacular loss of American science at the hands of our competitors or a serious threat to our national security due to insufficient R&D support.

In other words, we need another Sputnik moment.

Posted in Science & Technology | Tagged , , | Leave a comment