The Innovator's Cookbook Part 1

THE INNOVATOR'S COOKBOOK by Steven Johnson.

INTRODUCTION.

The first step in winning the future is encouraging.

American innovation.

-BARACK OBAMA, STATE OF THE UNION ADDRESS, JANUARY 20II.

I first began working explicitly on the problem of innovation in the summer of 2006, when I started writing a book about new ideas and the environments that encouraged them. But it wasn't until I finished that book that I realized I had been wrestling with innovation, in one way or another, for almost two decades. The first articles I published in my twenties as an easily distracted English-lit grad student gravitated toward the digital revolutions coming out of Silicon Valley; all my books since then have focused on new ideas and their transformative power-innovations in science or tech or politics or entertainment, some of them recent headlines and some ancient history.

That long history with the topic may help explain why I a.s.sumed almost by default, as I was writing the innovation book, that there was nothing particularly timely about the subject matter, nothing distinct to the zeitgeist of postmillennial culture. Sure, we routinely lavish praise on and pen hagiographies about entrepreneurs like Steve Jobs and Mark Zuckerberg, but we did the same for Thomas Edison and Ben Franklin before them. I had written books that I consciously thought of as zeitgeist-y as I was working on them. Innovation wasn't like that. This was, in fact, one of the things I found refres.h.i.+ng about the topic. Innovation wasn't trendy; it was evergreen.

But then something seemed to happen, as the world economy began to climb its way out of the Great Crunch of 2008 to 2009, and we began to probe through the rubble looking for clues to explain what had brought on such a colossal failure, clues that might also, we hoped, suggest ways to avoid similar failures in the future. After a decade of financial pseudo innovation-the creditdefault swaps and collateralized debt obligations that inflated the housing bubble and nearly brought down the world economy when that bubble inevitably burst-it seemed suddenly, viscerally clear that economic growth needed to come from making useful things again, whether those things were electric cars or digital code, and not just creating illusory value out of complex derivative schemes.

I saw this firsthand in the United States, and to a lesser extent in the UK, but I suspect the pattern extends throughout the world. By the time I had finished the final draft of my book, innovation seemed to be on everyone's lips: public school superintendents, venture capitalists, clean-energy entrepreneurs, op-ed writers. And so when President Obama delivered his State of the Union address in January of 2011, it was not terribly surprising to see him devote nearly a third of the speech to innovation-related initiatives. The speech is worth quoting from in some length, because the way that he frames the issue tells us something important about why innovation seems so central to us today: The first step in winning the future is encouraging American innovation. None of us can predict with certainty what the next big industry will be or where the new jobs will come from. Thirty years ago, we couldn't know that something called the Internet would lead to an economic revolution. What we can do-what America does better than anyone else-is spark the creativity and imagination of our people. We're the nation that put cars in driveways and computers in offices; the nation of Edison and the Wright brothers; of Google and Facebook. In America, innovation doesn't just change our lives. It is how we make our living.

Our free-enterprise system is what drives innovation. But because it's not always profitable for companies to invest in basic research, throughout our history, our government has provided cutting-edge scientists and inventors with the support that they need. That's what planted the seeds for the Internet. That's what helped make possible things like computer chips and GPS. Just think of all the good jobs-from manufacturing to retail-that have come from these breakthroughs.

Half a century ago, when the Soviets beat us into s.p.a.ce with the launch of a satellite called Sputnik, we had no idea how we would beat them to the moon. The science wasn't even there yet. NASA didn't exist. But after investing in better research and education, we didn't just surpa.s.s the Soviets; we unleashed a wave of innovation that created new industries and millions of new jobs.

This is our generation's Sputnik moment. Two years ago, I said that we needed to reach a level of research and development we haven't seen since the height of the s.p.a.ce Race. And in a few weeks, I will be sending a budget to Congress that helps us meet that goal. We'll invest in biomedical research, information technology, and especially clean energy technology-an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.

As Obama suggests, the social impact of innovation has a long history to it, one that, it should be said, is hardly as America-centric as Obama implies: think of the British steam engines that powered the first wave of the industrial revolution in the eighteenth century, or the inventions in algebra and double-entry accounting during the Islamic golden age more than a thousand years ago. The history of human progress, worldwide, is the history of new ideas put to wonderful new use.

But the State of the Union address also shed light on what makes our present att.i.tude toward innovation different, in two fundamental ways. The first is this distinct a.s.sumption that innovation can-and should-be cultivated; that it wasn't just something that would magically emerge on its own from the folkloric Entrepreneurial American Spirit. Innovation could be taught, encouraged, supported-or suppressed-thanks to decisions that we made as a society. It wasn't enough just to lower the capital gains tax and let the entrepreneurs and venture capitalists go wild; innovation required more subtle interventions for it to truly flourish.

The president's interest in nurturing innovation has its roots in a growing body of research that has acc.u.mulated over the past twenty years, some of it written by economists and legal scholars who would become part of Obama's inner circle. For most of the twentieth century, innovation lived at the margins of most economics scholars.h.i.+p. Thousands of books were written on the efficiency of markets, and the conditions under which governments might correct capitalism's turbulence or inequities; elaborate mathematical models were built to explain the miracles of price signaling. But the seemingly equally important question of how societies came up with new products in the first place went largely unexamined. Intriguingly, some of the most astute a.n.a.lyses of innovation came from open critics of capitalism: starting with Marx's famous observation that market-driven economies created a culture of permanent change, where "all that is solid melts into air." Later, the Austrian socialist Joseph Schumpeter chronicled capitalism's relentless drive for "creative destruction"-popularizing a phrase that would eventually be embraced by t.i.tans of industry and business school seminars, losing its original negative connotations in the process.

But the past two decades have corrected this strange oversight, as a growing number of influential thinkers have begun to investigate the mysteries of innovation, many of whom are represented in this volume. Books with t.i.tles like The Innovator's Dilemma and The Art of Innovation now circulate through business school syllabi and corporate retreats. Creativity consultants do a booming business. Cities around the globe vie to re-create the innovation magic of high-tech hubs like Silicon Valley or Route 128.

The Innovator's Cookbook is, in part, an attempt to capture the best of that wide-ranging scholars.h.i.+p in a single volume. But it is also an attempt to s.h.i.+ne light on a more recent development in the literature of innovation, one that is also evident in Obama's State of the Union address. And that is the growing sense that governments have an integral role to play in fostering innovative societies-and, perhaps more radically, that they themselves can show some of the inventiveness that has traditionally been the hallmark of the private sector. While the scholars.h.i.+p on innovation that has blossomed over the past twenty years has opened many doors in understanding how new products and services emerge, it has generally worked under the a.s.sumption that the most important innovations arose out of the compet.i.tive pressure of the marketplace. But the revolutionary impact of the Internet and the Web-the two most transformative innovations of our time, both of which evolved outside traditional market environments and are, effectively, owned and operated collectively-have made it clear that the private sector hardly holds a monopoly on innovation.

I suspect the most important breakthroughs over the next ten years will come from hybrid environments, where the public and private sectors overlap. Consider two examples from the past few years: Kickstarter and SeeClickFix. Kickstarter is a site that allows individuals to fund creative projects, like movies, art installations, alb.u.ms, and so on. Donors may get special gifts in return for their contributions-signed copies of the final CD or an invitation to the opening-but they do not own the creations they help support. In just two years of existence, Kickstarter has raised more than $60 million for thousands of projects, taking a small cut of each transaction. The economic exchange that Kickstarter enables between donors and creators works outside the traditional logic of markets. People are "investing" in others not for the promise of subsequent financial reward, but rather for the social rewards of supporting important work. The artists, on the other hand, are relying on a decentralized network of support, not government grants. And yet Kickstarter itself is a for-profit company that may well make a nice return for its own investors and founders.

SeeClickFix is a mobile app that allows community members to report open fire hydrants, dangerous intersections, threatening tree limbs, and other pressing local needs. (A related service, FixMyStreet, launched in the UK several years ago.) In proper Web 2.0 fas.h.i.+on, all complaints are visible to the community, and other members can vote to endorse the problem. SeeClickFix has begun offering free dashboards for local governments, with a premium service available for a monthly fee. The service also bundles together its user-generated reports and e-mails them to the appropriate authorities in each market. It's an intriguing hybrid model: the private sector creates the interfaces for managing and mapping urban issues, while the public sector continues its traditional role of resolving those issues.

What I love about these services is not just the laudable goals they both set out to accomplish, but the inventiveness of the approaches they take. They are each tackling a long-standing social problem: How do we support artists whose work is not yet sustained by the marketplace? How do we monitor all the changing needs of real-world neighborhoods? But their methods are amazingly novel-so novel, in fact, that you might be inclined to suspect that they might never work in practice. But the same skepticism was said of a user-auth.o.r.ed encyclopedia that Jimmy Wales launched ten years ago-and now Wikipedia regularly outperforms the Encyclopedia Britannica. That these unlikely projects actually turn out to work in practice is a testament not only to the new technologies of the Web and mobile computing; it's also a testament to the adventurousness of the general public, the people who actually use and support these services, and in many cases expand their range-a process that Columbia's Amar Bhide calls "venturesome consumption."

This is the great opportunity of our time: we have both extraordinary new tools that allow us to build things like Kickstarter and SeeClickFix and we have a society of consumers and citizens who are willing to experiment with these crazy new schemes, so much so that what seemed crazy two years ago now just seems routine. The ideas a.s.sembled in this book-particularly in the conversations with "innovators at work" in the second half-are all, in their different ways, wrestling with the question of how best to capitalize on that opportunity. New ideas have been driving human progress since the Stone Age; what we have now is a growing set of new ideas about how to generate new ideas. Many of those ideas will come out of private-sector start-ups, but just as many will come from outside the marketplace: from universities, and nonprofits, and, yes, even governments. In this sense, The Innovator's Cookbook is not unlike what you find in the traditional variety of cookbooks: the best recipes draw their flavors from multiple cuisines. The Internet has been the most powerful driver of innovation in our time in large part because it drew upon ideas from university scholars.h.i.+p, military research, visionary start-ups, open-source collaborations-not to mention all those venturesome consumers figuring out amazing new uses for the technology. The ideas that will "win the future"-in the United States, and everywhere else-will no doubt be concocted out of equally diverse ingredients.

Steven Johnson.

May 2011.

ESSAYS.

The Discipline of Innovation.

PETER DRUCKER.

Despite much discussion these days of the "entrepreneurial personality," few of the entrepreneurs with whom I have worked during the past thirty years had such personalities. But I have known many people-say salespeople, surgeons, journalists, scholars, even musicians-who did have them without being the least bit entrepreneurial. What all the successful entrepreneurs I have met have in common is not a certain kind of personality but a commitment to the systematic practice of innovation.

Innovation is the specific function of entrepreneurs.h.i.+p, whether in an existing business, a public service inst.i.tution, or a new venture started by a lone individual in the family kitchen. It is the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth.

Today, much confusion exists about the proper definition of entrepreneurs.h.i.+p. Some observers use the term to refer to all small businesses; others, to all new businesses. In practice, however, a great many well-established businesses engage in highly successful entrepreneurs.h.i.+p. The term, then, refers not to an enterprise's size or age but to a certain kind of activity. At the heart of that activity is innovation: the effort to create purposeful, focused change in an enterprise's economic or social potential.

SOURCES OF INNOVATION.

There are, of course, innovations that spring from a flash of genius. Most innovations, however, especially the successful ones, result from a conscious, purposeful search for innovation opportunities, which are found only in a few situations. Four such areas of opportunity exist within a company or industry: unexpected occurrences, incongruities, process needs, and industry and market changes.

Three additional sources of opportunity exist outside a company in its social and intellectual environment: demographic change, changes in perception, and new knowledge.

True, these sources overlap, different as they may be in the nature of their risk, difficulty, and complexity, and the potential for innovation may well lie in more than one area at a time. But together, they account for the great majority of all innovation opportunities.

1. Unexpected Occurrences.

Consider, first, the easiest and simplest source of innovation opportunity: the unexpected. In the early 1930s, IBM developed the first modern accounting machine, which was designed for banks. But banks in 1933 did not buy new equipment. What saved the company-according to a story that Thomas Watson Sr., the company's founder and long-term CEO, often told-was its exploitation of an unexpected success: The New York Public Library wanted to buy a machine. Unlike the banks, libraries in those early New Deal days had money, and Watson sold more than a hundred of his otherwise unsalable machines to libraries.

Fifteen years later, when everyone believed that computers were designed for advanced scientific work, business unexpectedly showed an interest in a machine that could do payroll. Univac, which had the most advanced machine, spurned business applications. But IBM immediately realized it faced a possible unexpected success, redesigned what was basically Univac's machine for such mundane applications as payroll, and within five years became a leader in the computer industry, a position it has maintained to this day.

The unexpected failure may be an equally important source of innovation opportunities. Everyone knows about the Ford Edsel as the biggest new-car failure in automotive history. What very few people seem to know, however, is that the Edsel's failure was the foundation for much of the company's later success. Ford planned the Edsel, the most carefully designed car to that point in American automotive history, to give the company a full product line with which to compete with General Motors. When it bombed, despite all the planning, market research, and design that had gone into it, Ford realized that something was happening in the automobile market that ran counter to the basic a.s.sumptions on which GM and everyone else had been designing and marketing cars. No longer was the market segmented primarily by income groups; the new principle of segmentation was what we now call "lifestyles." Ford's response was the Mustang, a car that gave the company a distinct personality and reestablished it as an industry leader.

Unexpected successes and failures are such productive sources of innovation opportunities because most businesses dismiss them, disregard them, and even resent them. The German scientist who around 1905 synthesized novocaine, the first nonaddictive narcotic, had intended it to be used in major surgical procedures like amputations. Surgeons, however, preferred total anesthesia for such procedures; they still do. Instead, novocaine found a ready appeal among dentists. Its inventor spent the remaining years of his life traveling from dental school to dental school making speeches that forbade dentists from "misusing" his n.o.ble invention in applications for which he had not intended it.

This is a caricature, to be sure, but it ill.u.s.trates the att.i.tude managers often take to the unexpected: "It should not have happened." Corporate reporting systems further ingrain this reaction, for they draw attention away from unantic.i.p.ated possibilities. The typical monthly or quarterly report has on its first page a list of problems-that is, the areas where results fall short of expectations. Such information is needed, of course, to help prevent deterioration of performance. But it also suppresses the recognition of new opportunities. The first acknowledgment of a possible opportunity usually applies to an area in which a company does better than budgeted. Thus genuinely entrepreneurial businesses have two "first pages"-a problem page and an opportunity page-and managers spend equal time on both.

2. Incongruities.

Alcon Laboratories was one of the success stories of the 1960s because Bill Conner, the company's cofounder, exploited an incongruity in medical technology. The cataract operation is the world's third or fourth most common surgical procedure. During the past three hundred years, doctors systematized it to the point that the only "old-fas.h.i.+oned" step left was the cutting of a ligament. Eye surgeons had learned to cut the ligament with complete success, but it was so different a procedure from the rest of the operation, and so incompatible with it, that they often dreaded it. It was incongruous.

Doctors had known for fifty years about an enzyme that could dissolve the ligament without cutting. All Conner did was to add a preservative to this enzyme that gave it a few months' shelf life. Eye surgeons immediately accepted the new compound, and Alcon found itself with a worldwide monopoly. Fifteen years later, Nestle bought the company for a fancy price.

Such an incongruity within the logic or rhythm of a process is only one possibility out of which innovation opportunities may arise. Another source is incongruity between economic realities. For instance, whenever an industry has a steadily growing market but falling profit margins-as say, in the steel industries of developed countries between 1950 and 1970-an incongruity exists. The innovative response: minimills.

An incongruity between expectations and results can also open up possibilities for innovation. For fifty years after the turn of the century, s.h.i.+pbuilders and s.h.i.+pping companies worked hard both to make s.h.i.+ps faster and to lower their fuel consumption. Even so, the more successful they were in boosting speed and tr.i.m.m.i.n.g their fuel needs, the worse the economics of ocean freighters became. By 1950 or so, the ocean freighter was dying, if not already dead.

All that was wrong, however, was an incongruity between the industry's a.s.sumptions and its realities. The real costs did not come from doing work (that is, being at sea) but from not doing work (that is, sitting idle in port). Once managers understood where costs truly lay, the innovations were obvious: the roll-on and roll-off s.h.i.+p and the container s.h.i.+p. These solutions, which involved old technology, simply applied to the ocean freighters what railroads and truckers had been using for thirty years. A s.h.i.+ft in viewpoint, not in technology, totally changed the economics of ocean s.h.i.+pping and turned it into one of the major growth industries of the last twenty to thirty years.

3. Process Needs.

Anyone who has ever driven in j.a.pan knows that the country has no modern highway system. Its roads still follow the paths laid down for-or by-oxcarts in the tenth century. What makes the system work for automobiles and trucks is an adaptation of the reflector used on American highways since the early 1930s. The reflector lets each car see which other cars are approaching from any one of a half-dozen directions. This minor invention, which enables traffic to move smoothly and with a minimum of accidents, exploited a process need.

What we now call the media had its origin in two innovations developed around 1890 in response to process needs. One was Ottmar Mergenthaler's Linotype, which made it possible to produce newspapers quickly and in large volume. The other was a social innovation, modern advertising, invented by the first true newspaper publishers, Adolph Ochs of the New York Times, Joseph Pulitzer of the New York World, and William Randolph Hearst. Advertising made it possible for them to distribute news practically free of charge, with the profit coming from marketing.

4. Industry and Market Changes.

Managers may believe that industry structures are ordained by the good Lord, but these structures can-and often do-change overnight. Such change creates tremendous opportunity for innovation.

One of American business's great success stories in recent decades is the brokerage firm of Donaldson, Lufkin & Jenrette, recently acquired by the Equitable Life a.s.surance Society. DL&J was founded in 1960 by three young men, all graduates of the Harvard Business School, who realized that the structure of the financial industry was changing as inst.i.tutional investors became dominant. These young men had practically no capital and no connections. Still, within a few years, their firm had become a leader in the move to negotiated commissions and one of Wall Street's stellar performers. It was the first to be incorporated and go public.

In a similar fas.h.i.+on, changes in industry structure have created ma.s.sive innovation opportunities for American health care providers. During the past ten or fifteen years, independent surgical and psychiatric clinics, emergency centers, and HMOs have opened throughout the country. Comparable opportunities in telecommunications followed industry upheavals-in transmission (with the emergence of MCI and Sprint in longdistance service) and in equipment (with the emergence of such companies as Rolm in the manufacturing of private branch exchanges).

When an industry grows quickly-the critical figure seems to be in the neighborhood of 40 percent growth in ten years or less-its structure changes. Established companies, concentrating on defending what they already have, tend not to counterattack when a newcomer challenges them. Indeed, when market or industry structures change, traditional industry leaders again and again neglect the fastest-growing market segments. New opportunities rarely fit the way the industry has always approached the market, defined it, or organized to serve it. Innovators, therefore, have a good chance of being left alone for a long time.

5. Demographic Changes.

Of the outside sources of innovation opportunities, demographics are the most reliable. Demographic events have known lead times; for instance, every person who will be in the American labor force by the year 2000 has already been born. Yet because policymakers often neglect demographics, those who watch them and exploit them can reap great rewards.

The j.a.panese are ahead in robotics because they paid attention to demographics. Everyone in the developed countries around 1970 or so knew that there was both a baby bust and an education explosion going on; about half or more of the young people were staying in school beyond high school. Consequently, the number of people available for traditional blue-collar work in manufacturing was bound to decrease and become inadequate by 1990. Everyone knew this, but only the j.a.panese acted on it, and they now have a ten-year lead in robotics.

Much the same is true of Club Mediterranee's success in the travel and resort business. By 1970, thoughtful observers could have seen the emergence of large numbers of affluent and educated young adults in Europe and the United States. Not comfortable with the kind of vacations their working-cla.s.s parents had enjoyed-the summer weeks at Brighton or Atlantic City-these young people were ideal customers for a new and exotic version of the "hangout" of their teen years.

Managers have known for a long time that demographics matter, but they have always believed that population statistics change slowly. In this century, however, they don't. Indeed, the innovation opportunities made possible by changes in the numbers of people-and in their age distribution, education, occupations, and geographic location-are among the most rewarding and least risky of entrepreneurial pursuits.

6. Changes in Perception.

"The gla.s.s is half full" and "The gla.s.s is half empty" are descriptions of the same phenomenon but have vastly different meanings. Changing a manager's perception of a gla.s.s from half full to half empty opens up big innovation opportunities.

All factual evidence indicates, for instance, that in the last twenty years, Americans' health has improved with unprecedented speed-whether measured by mortality rates for the newborn, survival rates for the very old, the incidence of cancers (other than lung cancer), cancer cure rates, or other factors. Even so, collective hypochondria grips the nation. Never before has there been so much concern with or fear about health. Suddenly, everything seems to cause cancer or degenerative heart disease or premature loss of memory. The gla.s.s is clearly half empty.

Rather than rejoicing in great improvements in health, Americans seem to be emphasizing how far away they still are from immortality. This view of things has created many opportunities for innovations: markets for new health care magazines, for exercise cla.s.ses and jogging equipment, and for all kinds of health foods. The fastest-growing new U.S. business in 1983 was a company that makes indoor exercise equipment.

A change in perception does not alter facts. It changes their meaning, though-and very quickly. It took less than two years for the computer to change from being perceived as a threat and as something only big businesses would use to something one buys for doing income tax. Economics do not necessarily dictate such a change; in fact, they may be irrelevant. What determines whether people see a gla.s.s as half full or half empty is mood rather than fact, and a change in mood often defies quantification. But it is not exotic. It is concrete. It can be defined. It can be tested. And it can be exploited for innovation opportunity.

7. New Knowledge.

Among history-making innovations, those that are based on new knowledge-whether scientific, technical, or social-rank high. They are the superstars of entrepreneurs.h.i.+p; they get the publicity and the money. They are what people usually mean when they talk of innovation, although not all innovations based on knowledge are important.

Knowledge-based innovations differ from all others in the time they take, in their casualty rates, and in their predictability, as well as in the challenges they pose to entrepreneurs. Like most superstars, they can be temperamental, capricious, and hard to direct. They have, for instance, the longest lead time of all innovations. There is a protracted span between the emergence of new knowledge and its distillation into usable technology. Then there is another long period before this new technology appears in the marketplace in products, processes, or services. Overall, the lead time involved is something like fifty years, a figure that has not shortened appreciably throughout history.

To become effective, innovation of this sort usually demands not one kind of knowledge but many. Consider one of the most potent knowledge-based innovations: modern banking. The theory of the entrepreneurial bank-that is, of the purposeful use of capital to general economic development-was formulated by the Comte de Saint-Simon during the era of Napoleon. Despite Saint-Simon's extraordinary prominence, it was not until thirty years after his death in 1825 that two of his disciples, the brothers Jacob and Isaac Pereire, established the first entrepreneurial bank, the Credit Mobilier, and ushered in what we now call finance capitalism.

The Pereires, however, did not know modern commercial banking, which developed at about the same time across the channel in England. The Credit Mobilier, failed ignominiously. A few years later, two young men-one an American, J. P. Morgan, and one a German, Georg Siemens-put together the French theory of entrepreneurial banking and the English theory of commercial banking to create the first successful modern banks: J.P. Morgan & Company in New York, and the Deutsche Bank in Berlin. Ten years later, a young j.a.panese, s.h.i.+busawa Eiichi, adapted Siemens's concept to his country and thereby laid the foundation of j.a.pan's modern economy. This is how knowledge-based innovation always works.

The computer, to cite another example, required no fewer than six separate strands of knowledge: * binary arithmetic.

* Charles Babbage's conception of a calculating machine, in the first half of the nineteenth century.

* the punch card, invented by Herman Hollerith for the U. S. census of 1890.

* the audion tube, an electronic switch invented in 1906.

* symbolic logic, which was developed between 1910 and 1913 by Bertrand Russell and Alfred North Whitehead * concepts of programming and feedback that came out of the abortive attempts during World War I to develop effective antiaircraft guns Although all the necessary knowledge was available by 1918, the first operational digital computer did not appear until 1946.

Long lead times and the needs for convergence among different kinds of knowledge explain the peculiar rhythm of knowledge-based innovation, its attractions, and its dangers. During a long gestation period, there is a lot of talk and little action. Then, when all the elements suddenly converge, there is tremendous excitement and activity and an enormous amount of speculation. Between 1880 and 1890, for example, almost one thousand electronic-apparatus companies were founded in developed countries. Then, as always, there was a crash and a shakeout. By 1914, only twenty-five were still alive. In the early 1920s, three hundred to five hundred automobile companies existed in the United States; by 1960, only four of them remained.

It may be difficult, but knowledge-based innovation can be managed. Success requires careful a.n.a.lysis of the various kinds of knowledge needed to make an innovation possible. Both J. P. Morgan and Georg Siemens did this when they established their banking ventures. The Wright brothers did this when they developed the first operational airplane.

Careful a.n.a.lysis of the needs-and above all, the capabilities-of the intended user is also essential. It may seem paradoxical, but knowledge-based innovation is more market dependent than any other kind of innovation. De Havilland, a British company, designed and built the first pa.s.senger jet, but it did not a.n.a.lyze what the market needed and therefore did not identify two key factors. One was configuration-that is, the right size with the right pay-load for the routes on which a jet would give an airline the greatest advantage. The other was equally mundane: How could the airlines finance the purchase of such an expensive plane? Because de Havilland failed to do an adequate user a.n.a.lysis, two American companies, Boeing and Douglas, took over the commercial jetaircraft industry.

PRINCIPLES OF INNOVATION.

Purposeful, systematic innovation begins with the a.n.a.lysis of the sources of new opportunities. Depending on the context, sources will have different importance at different times. Demographics, for instance, may be of little concern to innovators of fundamental industrial processes like steelmaking, although the Linotype machine became successful primarily because there were not enough skilled typesetters available to satisfy a ma.s.s market. By the same token, new knowledge may be of little relevance to someone innovating a social instrument to satisfy a need that changing demographics or tax laws have created. But whatever the situation, innovators must a.n.a.lyze all opportunity sources.

Because innovation is both conceptual and perceptual, wouldbe innovators must also go out and look, ask, and listen. Successful innovators use both the right and left sides of their brains. They work out a.n.a.lytically what the innovation has to be to satisfy an opportunity. Then they go out and look at potential users to study their expectations, their values, and their needs.

To be effective, an innovation has to be simple, and it has to be focused. It should do only one thing; otherwise it confuses people. Indeed, the greatest praise an innovation can receive is for people to say, "This is obvious! Why didn't I think of it? It's so simple!" Even the innovation that creates new uses and new markets should be directed toward a specific, clear, and carefully designed application.

Effective innovations start small. They are not grandiose. It may be to enable a moving vehicle to draw electric power while it runs along rails, the innovation that made possible the electric streetcar. Or it may be the elementary idea of putting the same number of matches into a matchbox (it used to be fifty). This simple notion made possible the automatic filling of matchboxes and gave the Swedes a world monopoly on matches for half a century. By contrast, grandiose ideas for things that will "revolutionize an industry" are unlikely to work.

In fact, no one can foretell whether a given innovation will end up a big business or a modest achievement. But even if the results are modest, the successful innovation aims from the beginning to become the standard setter, to determine the direction of a new technology or a new industry, to create the business that is-and remains-ahead of the pack. If an innovation does not aim at leaders.h.i.+p from the beginning, it is unlikely to be innovative enough.

Above all, innovation is work rather than genius. It requires knowledge. It often requires ingenuity. And it requires focus. There are clearly people who are more talented innovators than others, but their talents lie in well-defined areas. Indeed, innovators rarely work in more than one area. For all his systematic innovative accomplishments, Thomas Edison worked only in the electrical field. An innovator in financial areas, Citibank, for example, is not likely to embark on innovations in health care.

In innovation, as in any other endeavor, there is talent, there is ingenuity, and there is knowledge. But when all is said and done, what innovation requires is hard, focused, purposeful work. If diligence, persistence, and commitment are lacking, talent, ingenuity, and knowledge are of no avail.

There is, of course, far more to entrepreneurs.h.i.+p than systematic innovation-distinct entrepreneurial strategies, for example, and the principles of entrepreneurial management, which are needed equally in the established enterprise, the public service organization, and the new venture. But the very foundation of entrepreneurs.h.i.+p is the practice of systematic innovation.

"n.o.body Cares What You Do in There": The Low Road.

STEWART BRAND.

I thas to do with freedom. Or so I surmised from a 1990 conversation with John Sculley, then head of Apple Computer. Sculley was trained in architecture before he started rocketing up corporate ladders. During a break at a conference, we got talking about buildings. Apple had expanded from five buildings into thirtyone in the few years Sculley had been at Apple. I asked him, "Do you prefer moving into old buildings or making new ones?" "Oh, old ones," he said. "They are much more freeing."

That statement throws a world of design a.s.sumptions upside down. Why are old buildings more freeing? A way to pursue the question is to ask, what kinds of old buildings are the most freeing?

A young couple moves into an old farmhouse or old barn, lit up with adventure. An entrepreneur opens shop in an echoing warehouse, an artist takes over a drafty loft in the bad part of town, and they feel joy at the prospect. They can't wait to have at the s.p.a.ce and put it immediately to work. What these buildings have in common is that they are shabby and s.p.a.cious. Any change is likely to be an improvement. They are discarded buildings, fairly free of concern from landlord or authorities: "Do what you want. The place can't get much worse anyway. It's just too much trouble to tear down."

Low Road buildings are low-visibility, low-rent, no-style, high-turnover. Most of the world's work is done in Low Road buildings, and even in rich societies the most inventive creativity, especially youthful creativity, will be found in Low Road buildings taking full advantage of the license to try things.

Take MIT-the Ma.s.sachusetts Inst.i.tute of Technology. A university campus is ideal for comparing building effectiveness because you have a wide variety of buildings serving a limited number of uses-dormitories, laboratories, cla.s.srooms, and offices, that's about it. I'm familiar enough with MIT to know which two buildings are regarded with the most affection among the sixty-eight on campus. One, not surprisingly, is a dormitory called Baker House, designed by Alvar Aalto in 1949. Though Modernist and famous, it is warmly convivial and varied throughout, with a sintered-brick exterior that keeps improving with time.

But the most loved and legendary building of all at MIT is a surprise: a temporary building left over from World War II without even a name, only a number: Building 20. It is a sprawling 250,000 square-foota three-story wood structure-"The only building on campus you can cut with a saw," says an admirer- constructed hastily in 1943 for the urgent development of radar and almost immediately slated for demolition. When I last saw it in 1993, it was still in use and still slated for demolition. In 1978 the MIT Museum a.s.sembled an exhibit to honor the perpetual fruitfulness of Building 20. The press release read: Unusual flexibility made the building ideal for laboratory and experimental s.p.a.ce. Made to support heavy loads and of wood construction, it allowed a use of s.p.a.ce which accommodated the enlargement of the working environment either horizontally or vertically. Even the roof was used for short-term structures to house equipment and test instruments.

Although Building 20 was built with the intention to tear it down after the end of World War II, it has remained these thirty-five years providing a special function and acquiring its own history and anecdotes. Not a.s.signed to any one school, department, or center, it seems to always have had s.p.a.ce for the beginning project, the graduate student's experiment, the interdisciplinary research center.