"Governments should do much less...detailed short-term intervention...and [spend more time] thinking about the overall framework."
Keith Ormerod, Butterfly Economics: A New General Theory of Social and Economic Behaviour.
My belief is that governments across the world should develop a stronger focus on innovation, especially in developed countries, which cannot or will not engage in price competition with rising powers such as China or India. How can this be done? I am going to sketch for you how it could happen.
Developing a National Strategy
It is generally accepted that efforts should concentrate on improving competitiveness, an outcome measured ultimately by return on the overall investment of resources. Governments should develop national strategies to improve competitiveness and to grow a country's capacity to compete. Governments should also identify and deal with any disruptive trends we can identify, be they positive or negative, that are likely to have a material impact on competitiveness or on the deployment of the strategy.
The best indicator of competitiveness available is probably the pair of indices developed and monitored by Michael Porter. The indices report on current competitiveness (“CCI”) and on growth competitiveness (“GCI”). Each index is made up of components. The CCI includes a rating for the overall environment in the country and a rating for company operations and strategy. The GCI includes ratings for technology, public institutions and the macroeconomic environment.
Studying the GCI and CCI has given me the raw material needed to create the elements of suggested model national strategy.
The Elements of a National Strategy
From these observations I infer the following elements, which provide the chief ingredients for a national strategy:
- Generally, governments in developed countries have done well to establish a positive environment, but need to do more to shore up the future.
- Getting the environment right is not enough - companies must improve and must do so dramatically and quickly. To put it another way - there is only so much that can be done by government; business must also do its part and should not necessarily wait for government to do its part.
- All tiers of government need to do better in regard to managing their own affairs
These inferences point to a strategy with these elements:
Stepping up efforts on:
- Getting the framework right - regulation, financing, infrastructure, skills and so on.
- Helping companies to grow, develop and deploy new business models appropriate to emerging circumstances.
- Reforming government
Maintaining efforts on technology and adoption of technologies
If these are to be the elements of a national strategy, what needs to happen at the enterprise level?
The Ecology of Business
Think of a business ecosystem as a “micro economy” that coalesces around business innovation, spanning a variety of industries. Within that ecosystem organizations can develop capabilities around the innovation, work cooperatively and competitively to support new products, to satisfy customer needs, and to incorporate the next round of innovation. Or they can “compete” each other to death, in a non-nuclear version of MAD (“mutually assured destruction”).
Examples are rife, starting with the airline industries, where most airlines in the USA, for example, keep going in and out of Chapter 11, narrowly avoiding (but not all) the precipice of bankruptcy.
A more positive example is provided by the various gold rushes of the 19th century, which generated whole new economic systems in the USA and in Australia, directly and indirectly. An even earlier positive example is provided by the invention of a coherent set of banking practices and conventions in Renaissance Italy.
It Is the Fit Who Survive…not the Fittest
A micro economy will emerge (or will be created, as we will see later) where there is an opportunity environment in the fitness landscape. The term fitness landscape comes from biology, where it is used as a framework for thinking about evolution. A fitness landscape is “where the peaks represent high fitness, and populations wander under the drives of mutation, selection, and random drift across the landscapes, seeking peaks, but perhaps never achieving them”.
Think of an opportunity environment as “a space of business possibility”, created by or arising from unmet customer needs, unexploited technologies, potential regulatory openings, prominent investors, and many other untapped resources. Examples of this are numerous, starting with mobile phone technology, cycling through home theatre, encompassing home delivery of fast or prepared foods, and many others.
These are natural phenomena, not unique to business or the world of economics. In fact, anyone familiar with environmental studies will instantly understand what I am saying here.
As Darwin observed in the Galapagos, where there are niches in the local environment that allow for organisms to thrive, then an organism will evolve to fit each of those niches, even if those organisms turn out to be variations on the same theme (in Darwin's case, a multitude of varieties of finch).
