Talent Management Column

Stuck in Reality

Two new publications shed light on why the prospects for game-changing innovation aren't as good as many might like to think.

Wednesday, December 21, 2016
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Silicon Valley and the high-tech sector associated with it have dominated much of our attention, and held much of the promise, in U.S. business over the past generation. The view that the tech sector is an engine of endless innovation is commonplace, with the latest wave being the recent frenzy surrounding the promise of robotics and the view that this technology will soon be taking over jobs everywhere.

Running smack up against that narrative are two recent publications that make precisely the opposite argument. The first of these is a recent book by economist Robert Gordon, The Rise and Fall of American Growth, which outlines the history of the U.S. economy since the Civil War and the breakthroughs in innovation that drove our standard of living.

One of Gordon's important observations is that growth in the U.S. economy has been on a slow decline since the burst of innovation early in the last century, and the prospects for the kind of game-changing innovations that truly cause productivity and standards of living to rise have not happened and don't appear to be on the horizon.

In contrast, it doesn't take much time looking through the annals of U.S. history to realize how enormous the transformations in technology were at the beginning of the 20th century -- think cars, electricity, telephones and airplanes all within a decade or so -- and how those new products drove the explosive growth of the economy through the end of the 1960s. Since then, however, even the most important innovations have been relatively wimpy. Yes, computers have become smaller and more powerful -- and they continue to drive cheaper ways to perform traditional operations. But computers have also been around since WWII, and a generation has passed since we first had PCs on our desks.

The second and more recent publication is a series of articles in the Wall Street Journal on innovation. Those pieces focus on the recent past and make a similar point: Despite the hype about recent innovations coming from from Silicon Valley, most of them have centered on new ways to send messages to friends, which hasn't exactly led to a breakthrough in economic productivity.

The WSJ articles describe, industry-by-industry, how the current paradigms seem stuck, not just because of a lack of potential ideas, but because the incentives for industries to do things differently just aren't there. In medicine, for example, we have drugs that treat most of the illnesses that are substantial enough to make those drugs profitable, while the big remaining illnesses, such as Alzheimer's, don't seem to be susceptible to the approaches that have produced breakthrough drugs in the past.   

Both publications are deeply pessimistic about the growth prospects for the U.S. economy going forward, at least for the foreseeable future. Of course, that also means they are pessimistic about the prospects for growth in the U.S. standard of living.

On a more day-to-day level, these reports run exactly counter to the recent hoopla about the potential of robots and artificial intelligence to change and improve in a fundamental way how businesses operate.

One thing these pessimistic stories show (and they certainly seem right about this) is that the trajectory of U.S. growth has been down for so long -- since the 1960s -- that it is a mistake to think of the recent slow growth period as an aberration. Unless you are a country catching up on economic development, fast growth is the exception. The WSJ articles make the additional point that truly transformative innovations are likely to be much more difficult to secure over time because of diminishing returns. The idea that people in their garages are going to come up with new solutions to fundamental problems that we've been working on for decades is much less likely than when those problems were first being tackled. Even if they did come up with such solutions, we have so much invested in the current ones (think of roads and cars around transportation) that even were someone to come up with a better approach, the prospects of it being profitable are much less than that of modest innovations in the current system.

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Of course, it's always possible that some new transformation is just around the corner, but it's also important to remember that just being able to do something with technology doesn't make it economically feasible. Some technologies never become feasible, which is why we didn't get flying cars and jetpacks after they were first created in the 1960s.

So what does all this mean for us? A recent attention-getting survey by Korn Ferry reports that CEOs now believe technology will contribute more to the success of their companies than their employees. But that view suggests those CEOs are making a big mistake by listening to the hype from the business press rather than to the more reasoned analyses based on actual experience.

Tech lovers also ignore the fact that many of the most important transformations in the world economy have been about management -- the assembly line, teamwork, and the human-relations movement just to name a few. If big technology innovations are truly lagging, human innovations will become much more valuable.

Rather than waiting for AI to replace our current workers, maybe we should focus on how investing in them and managing them better could raise productivity and economic growth.

Peter Cappelli is the George W. Taylor Professor of Management and director of the Center for Human Resources at The Wharton School of the University of Pennsylvania in Philadelphia. His latest book is "Will College Pay Off? A Guide to the Most Important Financial Decision You'll Ever Make."


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