GLOBAL INVESTOR FOCUS <strong>Innovation</strong> — 0 US non-farm productivity average annual growth rate Source: Datastream, Credit Suisse 1.7% 1.6% 2.0% 2.2% 2.7% 2.8% 1950s 1960s 1970s 1980s 1990s 2000 – 2006 America’s golden era returns thanks to innovation US productivity growth in 2000–2006 reached record levels, as the technological innovations of the last 20 years fed through into the economy, bolstered by the effects of globalization and greater urbanization.
GLOBAL INVESTOR FOCUS <strong>Innovation</strong> — 0 The new wave of innovation The quantum leap forward in information technology over the last two decades has unleashed one of the most important waves of innovation since the advent of electricity. And as this issue of Global Investor Focus shows, the momentum is still building, opening up a whole new field of investment opportunities. Giles Keating, Head of Global Research, Credit Suisse The most powerful innovations, driving leaps in economic growth and business opportunities, center on technologies that enable other technologies. A century ago the harnessing of electricity played this role, facilitating development in areas as diverse as automobiles and radio. Nowadays, information and communications technologies go even further. They drive innovation in sectors ranging from mass entertainment to air travel, but also support other enabling technologies such as financial engineering and nanotechnology, which in turn facilitate further innovation. The recent acceleration of US productivity to record levels is evidence that the current technology cluster is much more powerful than its predecessors (see graph opposite). Moreover, its impact is magnified by interaction with other large-scale changes, such as urbanization and globalization. This Global Investor Focus aims to give investors road signs showing the direction innovation is taking the macroeconomy and financial markets, while also looking at some of the investment opportunities it is triggering. A guiding theme from our eminent contributors is that we are still in the early stages of the information and communication technology (ICT) revolution, with far more impact still to come (see graph on page 8). If this is right, it bodes well for investors, since it suggests many future years of high-productivity growth. Professor Giovanni Dosi of the Sant’Anna School of Advanced Studies, Pisa, argues that the impact of the PC, the Internet and mobile phones, though substantial, does not yet represent as great a break with the past as, say, the move from horse-borne letters to the telegraph and the telephone. What might help unlock another leap forward? Chris Anderson of “Wired” magazine argues that the key is generational: “Technology does not really show what it is all about, until a generation has grown up with it.” I think he is quite right. Why are our cities still full of buses that drive around with many empty seats on fixed routes, rather than responding to passenger requests keyed in by cell phone? The technology is there, but it will take a new younger generation of entrepreneurs and city leaders to see its application as natural. A second crucial broad theme is that innovation is as much about process and organization as it is about physical science. Professor Niraj Dawar, University of Western Ontario, Canada, gives the fascinating example of Orica, which moved from the commodity business of selling explosives by the kilogram, to the valueadded business of selling an outcome, measured in terms of the amount of rock moved and the error tolerance. The physical material being sold was the same, but the process behind the offering to the customer was utterly innovative. Professor Dosi takes the same idea but stresses it at the level of society as a whole, arguing that social organization is still stuck in the mass-production era that followed the Second World War. He believes institutions ranging from social welfare systems through to labor unions, and the relationship between government and consumers, need to be redesigned around technology now far more diffuse and responsive. And this leads to a third key theme, which is the growing power of the consumer, including very poor ones, in a world where ICT makes it so much easier to tailor products to new customer segments, or individual needs. This is stressed by Professor C. K. Prahalad of the University of Michigan, author of “The Fortune at the Bottom of the Pyramid.” He notes how firms like Motorola, Nokia
Change language