Our primary mantra for a business is “differentiate through innovation or perish.” This is accomplished primarily through extravagant engineering and design and the construction of Midas versions. This is not an easy path to follow, because there is a natural tendency toward inertia and resting on one's laurels. 1 It is our assertion that creative and innovative business planning driven by learning-about and learning-by-doing leads to sustainable businesses. Our focus will be on the upfront activities and ideas for product and service differentiation that result in competitive products and services. They include the endless cycle of business planning, creative and innovative insight, learning-about, and learning-by-doing.
The second mantra of the entrepreneur is to “strive to reduce costs.” This is accomplished primarily through frugal engineering and design and the construction of Hermes versions. Some organizations have been overly enthusiastic in embracing this mantra. In some businesses, learning-by-doing has been abandoned in an attempt to dramatically cut costs and increase margins in the wake of intense international competition. But this has had a negative impact on the ability of many organizations to innovate, because many companies have lost the ability to exploit new knowledge and information when it becomes available. Many organizations have lost what is referred to as absorptive capacity. Absorptive capacity is the ability of a firm to “recognize the value of new information, assimilate it, and apply it to commercial ends.” 2 It is the ability to apply previously gained knowledge and insight to understanding how new information and knowledge can be applied. Developing absorptive capacity is synonymous with developing insight. Insight is the ability to perceive complex situations, problems and opportunities clearly and deeply. Andy Grove, a past founder and CEO of Intel pegs the current situation perfectly:
Silicon Valley is a community with a strong tradition of engineering, and engineers are a peculiar breed. They are eager to solve whatever problems they encounter. If profit margins are the problem, we go to work on margins, with exquisite focus. Each company, ruggedly individualistic, does its best to expand efficiently and improve its own profitability. However, our pursuit of our individual businesses, which often involves transferring manufacturing and a great deal of engineering out of the country, has hindered our ability to bring innovations to scale at home. Without scaling, we don't just lose jobs—we lose our hold on new technologies. Losing the ability to scale will ultimately damage our capacity to innovate. 3
The USA is losing the ability to compete in high-tech fields in part because it has abandoned learning-by-doing. Basic research and applied research involving broad-based collaboration by government, academia, and business are essential for solving societal problems and in providing a base for technology-based businesses. 4 Basic research involves understating the fundamental principles and dynamics of physics, chemistry, biology, and cybernetics to name a few. Applied research involves translating the principles and dynamics of basic research into commercial applications. The U.S. government up to about 1990 distributed about the same amount of funds to both basic and applied research projects. In recent years, the gap between basic research funding and applied research funding has been widening. The U.S. government has provided less money for applied research. 5
Outsourcing has also reduced the level of applied research. New product development is essentially applied research. New product development is facilitated when an organization has core competencies in research and development (R&D), product design, and manufacturing. Everyone is beginning to realize that there is a synergistic interplay between R&D, product design, marketing, and manufacturing. New product development is put at risk when these activities are outsourced, off-shored, or both. Entire industries are affected as the knowledge is not readily available for solving problems and realizing new opportunities essentially because it is embedded elsewhere.