Looking for some advice on how to tackle the innovation issue, Arab News spoke with Steve Mills, senior vice president and group executive, Software & Systems, IBM. In 2000, Mills took on the role of senior vice president and group executive, of IBM’s Software Group. Then last year, he was named to his current position, adding hardware and systems to his responsibilities. In this capacity, he is responsible for directing approximately 100,000 employees worldwide spanning development, manufacturing, sales, marketing and support professions.

IBM has a history of being inventive and innovative. In January, it was announced that IBM’s inventors had received a record 5,896 US patents in 2010, marking the 18th consecutive year that the company has topped the list of the world’s most inventive businesses. IBM’s inventiveness stems from the company’s long-term commitment to development and bold, exploratory research. IBM spends approximately $6 billion in R&D annually. IBM’s 2010 patent total nearly quadrupled Hewlett-Packard’s and exceeded the combined issuances of Microsoft, Hewlett-Packard, Oracle, EMC and Google.

Mills began the discussion by explaining that there is a difference between invention and innovation. Invention is the first occurrence of a concept or process that comes from an individual’s ideas or research. Innovation is the actualization of an invention – making it into a real application, whether to benefit society or for commercialization.

“There is a basis for the dialogue that has been going on about innovation,” said Mills. “One of the things we see taking place is that there is a recognition that because the world builds on itself, many of the things that we experience as improvements, whether that’s an effect in business or an effect in our personal lives, that those things are a result of a cumulative effect of many inventions. When you begin to bring inventions together, that set of activities is more or less the definition of innovation.”

Mills remarked that at IBM he would be considered an innovator. He isn’t a scientist, engineer or mathematician  — some of the professions of inventors at IBM. His role in the company is to bring a lot of inventions together, figure out how to apply them and then improve a business process, a government activity or any aspect of modern living. Because IBM is a public company — a profit making concern — it is important for IBM to hire excellent innovators who can bring its inventions to fruition. And for society as a whole, innovators are essential. The world improves not merely as a function of the inventions that feed the innovation, but life often improves due to the innovative activities themselves.

“You get a multiplier effect,” Mills said. “When an ever larger number of inventions combine with an ever greater number of things around which innovation has occurred, you have an opportunity for expanding out and even more innovation taking place. It builds on itself, but not by itself. It’s all human endeavor and I think that you have to combine this idea of innovating with the necessary motivation. That includes culture, attitude and energy.”

Mills pointed to the People’s Republic of China as a nation that has dramatically improved its economy and its standard of living through innovation. The Chinese people have used innovation coupled with a six day work week and much personal sacrifice to create a better future for their children. As a nation they are helped too by their huge population. There are always some people in a society who are more motivated more than others to do innovative work. In China the number of potential innovators gives them an edge. 

“When I speak with people in China, they say that while they are innovative, they don’t invent enough. This is something that they are changing,” said Mills.

The Chinese have the money to focus more on invention now because their economy is booming.  They are the world’s second largest economy in absolute terms. Many economists believe that in less than a decade, China will be the world’s largest economy, overtaking the United States. This is nothing new. Rather, it’s a return to the status quo. Before the Industrial Revolution, China was the world’s largest economy. Then through invention and innovation, western nations increased productivity and accelerated past China – which continued to depend on labor alone for economic growth.

“These days the Chinese are combining labor with innovation and voila! They are on the way to being the world’s largest economy,” Mills said.

Saudi Arabia can’t possibly compete with China in terms of population, but we can do more to increase innovation in the Kingdom. Mills applauded the government’s policy in sending students abroad for higher education. Now he thinks that the challenge is in motivating the Kingdom’s youth to participate in growing the Saudi economy. To do that society must come to value people’s contributions, not only their titles. Not every Saudi can have an executive title, but the work that any Saudi does can be productive and innovative. Talented, capable individuals participating in the economy at every level is essential.

Mills asserted that the government must do more to encourage the growth of the private sector, particularly by nurturing entrepreneurship.  The Saudi government needs to provide more venture capital to enable young entrepreneurs to take good inventions and commercialize them through the creation of viable business plans which incorporate innovation and hard work. Mills explained that in the US, venture capital is largely provided by the private sector, but that is not the case in Saudi Arabia. Thus the government must do more. It should invest to create a business culture where entrepreneurs are encouraged to take risks.

“The Saudi government certainly does have money (to do this),” Mills said. “It makes substantial foreign investments so the Saudi government is certainly in a position to create entrepreneurial funds.  What happens in other countries is that you get a linkage between the sources of money, in this case that can be the government, together with universities, which obviously are sources of new ideas and creativity.

Mentors with business acumen will have to consult and give advice to help nurture these startups from idea to being a true business venture. You put those pieces together and you create the virtuous circle that ensures that most of the money realizes some degree of success.”

There was no mistake in Mills stating that “most” of the money would bring a return. He insisted that a willingness to fail is part of a culture that truly encourages innovation. In one of the most innovative places in the world, Silicon Valley, there is tolerance for failure because there is a belief that without failure the “next big thing” won’t be discovered.  

“California is probably the only place in the United States where failure is actually celebrated because failure is merely an indication that you’re on a path to success, as opposed to somehow or another it’s a reflection on you and your character,” Mills advised. “That willingness to take a lot of risk is part of IBM’s success.”

Not every idea that IBM’s scientists come up with will have great commercial value. And some ideas that IBM thinks will be big hits, eventually come to nothing. What sustains the company is that it has the financial wherewithal, the capital structure, an extraordinary balance sheet and a long-term view of invention and how those inventions can be turned into innovative new things.

“I’ve been doing this for 37 years. In my experience typically what happens is that ideas sometimes are ahead of their time. You might end up putting an idea back on the shelf and then the trick is to bring it back at the right time - not leave it on the shelf and be chasing the market instead of making the market,” Mills observed. “I have teams that have been working in certain areas for ten to twenty years. They first brought out an idea back in 1989 and it didn’t work out too well. Then we tried it again in 1995 and it wasn’t quite right. Finally we started it up again six years later and it clicked and now it’s actually producing real revenue and profit for the business. That’s why I think it’s important to have that long-term perspective. Invention and innovation both need to be nurtured.  They will take time to evolve and there needs to be a stick-to-itiveness and a willingness to try and try again.”

Think that sounds like a simplistic, idealistic method of realizing profits? Then consider these facts. IBM has delivered consistent quarterly earnings every year since 2006. IBM’s performance has exceeded the Dow Jones Industrial Average (DJIA) and the S&P 500.

“Investing in IBM is one of the best investments anyone could make,” said Mills. “If you had invested a dollar in IBM when the company first went public, that dollar would be worth $4,400 today. There are very few investments that have brought such a return.”

That’s something to consider by anyone who believes that gold or silver will bring better long term value than investing in innovative entrepreneurs.