Samuel J. Palmisano
IBM Chairman and Chief Executive Officer
Final Remarks, as prepared
Presidential Lecture & Honorary Degree Ceremony
Rensselaer Polytechnic Institute
Troy, NY
September 15, 2005
"Innovation and Leadership in the 21st Century"
President Jackson, Dr. Peterson, trustees, members of the RPI administration, faculty, and student body. I thank you for this honor. Until today, I would have thought it impossible to feel humble and proud at the same time. But that is where I find myself at this moment.
The humility I feel is a personal response in receiving an honorary degree from the institution that has produced Nobel Prize-winning scientists ...
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We are indebted to them all ... and to Rensselaer Polytechnic Institute, for the education and inspiration that set them on their way.
The pride I feel comes from the longstanding partnership between RPI and IBM, a partnership that has enriched both of our organizations.
For our part, IBM relies a great deal on a number of talented graduates from RPI, including:
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Nick, of course, is no stranger to receiving honors from RPI, as well as honorary doctorates from several other institutions. But he also arrived at IBM six years before I did, so I suppose he is entitled!
In addition to the leaders I just mentioned, IBM employs nearly 1,000 RPI graduates, 47 of whom are executives with the company. And RPI consistently ranks among IBM's top recruiting campuses in the country.
Clearly, we owe a significant measure of our success to the men and women you have educated and prepared for leadership in the information technology field. And we are excited by the promise of our ongoing partnership.
Through our Shared University Research program, IBM is collaborating with researchers at RPI in such vital areas as grid computing, advanced programming models and middleware.
You are also our partners in promoting diversity in the ranks of our engineers and scientists ... in preparing the next generation of leaders in the information technology industry ... and in helping our nation rededicate itself to innovation and leadership in the 21st century, which is my main topic for this afternoon.
But what truly unites IBM and RPI, I believe, are our shared values. This is an institution that asks, "Why not change the world?" What better partner for a company like IBM, which for nearly a century has relied on innovation not only to fuel our own success, but more importantly, to contribute in meaningful ways to the global society.
These are two cultures where the values of trust and personal responsibility imbue our relationships with our colleagues, our clients, and our communities. In the midst of the tragedy that has gripped Louisiana, Mississippi and Alabama, I am proud to see IBMers on the ground, helping to mitigate the crisis through our contributions of technical resources and talent. And I am inspired by the generosity of RPI, which has opened its doors, free of charge, to 100 students from Tulane and Xavier University, so that they may continue their studies here.
All of this is just to say how highly we regard IBM's partnership with RPI, and how grateful I am for the honor you have bestowed on me this afternoon. I accept it on behalf of all of my IBM colleagues ... in the hope that it will further strengthen the bond between our two great institutions.
The last time I spoke on this campus -- almost a year ago to the day -- I talked about the National Innovation Initiative, a year-long collaboration among some 400 leaders of American industry, government, labor, the nonprofit sector, colleges and universities. I was a co-chair of the initiative, and Dr. Jackson served on the principals committee.
This initiative was launched by the U.S. Council on Competitiveness in response to a widespread and growing concern that America was losing its innovative edge. A nation founded by a restless, pioneer spirit of discovery and innovative ideas about self-government .. a nation that built a progressive society and an economic juggernaut on the strength of its innovative capabilities .. this nation was suddenly at risk of falling behind -- and at just the wrong time, when the game was becoming dramatically more competitive.
Although America has long set the standard for innovation, other countries are now aggressively in the game. Sweden, Finland, Israel, Japan and South Korea all spend more on R&D as a share of GDP than the United States. Economists estimate that productivity gains fueled by innovation generated one-half of the growth in the U.S. gross domestic product over the last half century. But rather than stoke the engine, we've witnessed a long-term decline in federal research funding.
Meanwhile, we are losing a global skills race. In the U.S., Japan, Australia and much of western Europe, aging populations are gradually depleting the ranks of our most seasoned leaders -- not only in science and technology, but throughout the public and private sectors. And in this country, we are failing to prepare in sufficient numbers the next generation of science and technology leaders.
William Brody, the president of Johns Hopkins University, my alma mater, recently told a Congressional committee that that one-third of all jobs in the United States require competency in science or technology -- yet only 17 percent of our college graduates are earning degrees in technical fields. That's 10 points behind the worldwide average -- and it is even farther behind China, where 52 percent of college degrees are going to science and technology majors.
So, in December of last year, the participants in the NII delivered our findings during a national summit in Washington, D.C. Our report began with a bold statement: "Innovation will be the single most important factor in determining America's success through the 21st century."
That was the consensus of hundreds of leaders and citizens we spoke with across the country. They agreed that almost every pressing national challenge you can name -- whether it's job creation, economic growth, educational excellence, even homeland security -- ultimately relies on our ability to forge innovative solutions.
Our report also included a slate of recommendations aimed at strengthening our innovation ecosystem -- that delicate balance of public and private investment, regulatory policy, intellectual property law, educational initiatives and shared infrastructure that enables innovation to thrive.
Since then, we have taken our message across the country, and around the world. In April, the Council on Competitiveness convened a national summit aimed at integrating and accelerating innovation-based economic development strategies in regions across the United States.
That same month in The Hague, the Council co-sponsored with the European Union a Transatlantic Dialogue, designed to underscore our shared interests with regard to innovation policy, and to promote collaboration between the U.S. and the E.U. on matters of innovation.
We have been working closely with Senator Joseph Liebermann and Senator John Ensign on legislation that will reflect the recommendations of the NII. We expect their bill to be introduced in the Senate this month. And we are working on a similar bill in the House of Representatives.
Overall, global innovation policy initiatives are underway in at least a dozen countries in the Americas, Europe and Asia. This is progress ... but focusing attention on the issue is only the first step. There is much more work that needs to be done to ensure the future of our innovation-based society.
But before I get into that, let's take a step back and consider the global transformation that is now underway ... and the urgency this transformation brings to our national innovation agenda.
In his book, The World is Flat, New York Times columnist Tom Friedman describes 10 dynamic forces that have transformed the global economic and political environment over the last decade. But I believe we can do with just three.
The first is the revolution in computing and communications. This is a familiar story by now, particularly to this audience. So let me present just one statistic. Last year the analyst firm IDC said we would reach a major milestone -- 1 billion Internet users worldwide -- by 2007. Now a number of analysts are saying we'll hit that mark by the end of this year. It truly has become a networked world.
The Internet is rapidly becoming the world's operational infrastructure. It is linking people, businesses and institutions, as well as billions -- ultimately trillions -- of devices. It is facilitating and transforming transactions of all kinds -- from commerce, government services, education and health care, to entertainment, conversation and public discourse.
The second catalyst is the uptake of open standards -- in technology, communications and, increasingly, across industries. The Internet and the Web would not exist without the capability to exchange data in a standardized, consistent manner across borders and among different types of computing systems.
Similarly, standards are taking hold in every industry, whether they are patient healthcare records, financial trading systems, security databases or inventory control systems. Without standards, it is impossible for information and data to be created, exchanged and recorded in a meaningful way.
Thousands of IBM's clients are migrating their technology infrastructures toward services-oriented architectures, which are based on Web services and standardized software components. This speeds the deployment of applications and programs, reduces cost, and most important, enables the enterprise to integrate and share data and processes that previously were incompatible. Standards, then, are vital to the third catalyst of change ... and that is integration, at all levels in business and society.
Businesses and institutions can now integrate operations and people on a scale never before possible. Organizations that used to be rigidly defined, largely self-contained entities are opening up, and becoming more flexible and fluid. Processes and operations once housed in vertical siloes can now be integrated horizontally, across the enterprise and beyond, connecting customers, partners and suppliers around the world.
A company today -- a university today -- is less a standalone entity than an element within an ecosystem. This has led to the formation of diverse communities of expertise, with the ability to communicate and collaborate across traditional corporate and national boundaries.
Here in New York, the Capital District - Tech Valley is a perfect example of just such a community. The Capital District represents a new model of collaboration, designed to speed innovation in the explosive field of nanotechnology and trigger new economic opportunities. IBM and RPI are among the more than 100 universities, corporations, government research laboratories and economic development organizations that are collaborating in this multinational, multidisciplinary project.
Let me quickly summarize then: What we have witnessed is the creation of a global networked infrastructure ... an infrastructure built on open standards ... that is rapidly breaking down hierarchies, transcending boundaries, and integrating industries and societies in unprecedented ways.
So when Tom Friedman says "the world is flat," this is what he means.
Now, as leaders of business, as leaders of academia, we can respond to these changes in one of two ways -- we can perceive them as a threat, and try to resist; or we can perceive them as an opportunity, and try to capitalize. Intuitively, we know the choice we will make. But let's take history as our guide.
An economic historian at Cambridge University in England, Carlota Perez, has identified five periods in modern history when business innovation -- sparked by technological advances -- has ushered in a revolutionary new era. Each of these new eras followed the same pattern.
First comes an "installation period," when businesses start to figure out how to capitalize on a new technology or resource. This is a period of exploration and exuberance. Engineers, entrepreneurs and investors all try to find the best opportunities created by a technological big bang.
For example: Arkwright's mill in England in the late 1770s. That advance in technology led to mechanization and factory production methods, first to the textile industry, and then to other manufacturing trades. The industrial revolution was born.
In 1901, another technological breakthrough -- deep drilling in Texas -- made petroleum plentiful. Seven years later, the first Model T rolled off the Ford production line in Detroit. As society began to restructure itself around automobiles and mass production, a new economic era was born.
Every period of invention generates wholly new products, markets and industries. Each era also creates a new infrastructure to support its growth, such as intercontinental railroads and national highway systems. Then the economy builds on top of it.
Early success in the installation period is usually eye-catching and exciting. More and more capital starts flowing in to finance new ventures, the smart ones as well as the shaky ones. When automobiles and highways came on the scene, money flowed into everything suburban. In the early days of the World Wide Web, it flowed into dot-coms.
Of course, all that speculative capital inevitably leads to a bubble, an economic meltdown and a correction. However, once the market adjusts, there is an extended period of deployment, which can last anywhere between 25 and 50 years.
This is the period of innovation, after the moment of invention. It's in this period that new ways of doing business are explored and deployed. It is during this period, too, that real broad-based wealth and value are created.
This is the moment where we find ourselves today. We have gone through the hard times and the collapse of the speculative bubble -- although some, citing the real estate bubble, argue that there's more collapse to come before we truly emerge. But either now or shortly, we will find ourselves at the beginning of the innovation phase.
The leaders who capitalize on the new capabilities available today have a chance to change the game in their markets and industries, and grow value for a very long time.
Now, let me make a couple of observations at this point.
When you study Dr. Perez' analysis, you notice that almost every one of the economic eras she describes -- whether it's the industrial revolution, the age of rail and steam, or the age of electricity and steel -- started in the west and migrated eastward over time. Today, the game-changing technologies are available to everyone. In fact, we are living through the first economic revolution that is not migrating from one geography to another. It is taking place on a global scale.
What's also interesting to note is that the technology that sparked the industrial revolution in England -- the water-powered mill -- actually existed centuries earlier in China. Why didn't the industrial revolution start there?
Historians continue to debate that question ... but one reason might be because technology invention by itself does not shift economies or create lasting change. Much more is required -- investment capital, access to labor and markets, the right balance of governmental regulation and deregulation. And, more than anything, it takes the insight to broadly apply technology in innovative ways that deliver value.
This is where the conversation gets particularly exciting ... when you consider the potential of innovation to address some of the most intractable problems in business and society. For example:
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The opportunities in healthcare, of course, are vast, and tremendously exciting. A project we are particularly proud of is underway in Switzerland. IBM and the Ecole Polytechnique are adapting our Blue Gene supercomputer to create a working model of the neocortex, the largest and most complex part of the human brain.
The so-called "Blue Brain Project" will search for new insights into how human beings think and remember, and how specific defects in our circuitry may contribute to autism, schizophrenia and Parkinson's disease. With Blue Brain, research inquiries that used to require several years of laboratory work can now be done in a matter of days, or even minutes.
At IBM, we have staked our future not just to innovative technologies, though we will continue to create plenty of those. We have also crafted a business model around innovation itself. We believe that we will generate the highest value for our clients, and the strongest returns for our investors, through the delivery of innovative solutions that integrate business processes and technology.
By being the innovation leader in our own industry, we will make our clients the innovation leaders in theirs. In the final analysis, the most important measure of American innovation may be the extent to which all American enterprises and institutions apply innovation to themselves.
The crucial question is -- will America embrace this opportunity? Will we keep up with the pace of innovation being now set in places like Korea, Finland, India and China ... or will we fall behind? Will we restore the innovation prowess that drove our success in the 20th century?
Make no mistake -- this isn't a space race. This is not about America against the world. But it is very much about America maintaining its strength and competitiveness in an increasingly integrated world economy.
So let me spend my last few moments talking about what we can do, as leaders of industry and education, to advance innovation in the 21st century.
Our first task must be to embrace a new model of innovation -- one that is open, collaborative, multidisciplinary and global.
No longer does innovation reside solely in isolated research labs and ivory towers. In a globally integrated economy, with open source technologies and industry standards increasingly at play, innovation is a team sport.
The open source communities that have emerged around Linux, Firefox, grid computing, Web services and so many other areas of technology are models of collaborative innovation. These communities are self-generating and self-governing. The more talented minds that get involved, the faster the rate of progress. Participants are driven as much by the pursuit of knowledge and the advance of science as they are by economic gain or individual reward.
But as we have seen, these new, collective approaches to innovation do create wealth, and they do create value. One way they do this is by creating entirely new market opportunities, which in turn create demand for new products and services.
It's because of our faith in collaborative innovation that IBM released 500 software patents to the open source community earlier this year. And last year, for the first time, we opened up our internal innovation process to the outside. We invited scientists and scholars from more than 100 organizations around the world to come to the table and share ideas about the future of healthcare, the future of government, and the future of work itself. Representatives from RPI were part of this exercise.
Where will it all lead? Undoubtedly to a few false starts and dead ends. Because collaborative innovation on this scale is relatively new, the structure and processes to accommodate ownership, openness and access are evolving. New creative models are still emerging. But eventually, we will learn how to successfully integrate collaborative innovation into our business models and organizational strategies. We must be willing to start the journey.
Second: For collaborative innovation to flourish, we must rethink our ideas about intellectual property.
Intellectual property laws were created to enable individuals and institutions to reap the rewards of their inventions, while at the same time making these intellectual assets available for society as a whole.
Within this rather delicate framework, however, there are diverging opinions about whose interests should come first. Some believe the best way to provide incentives for innovation is by fiercely protecting the inventor's proprietary interest. Others argue that we should open the doors and give full access to intellectual assets.
I believe we need a new path forward, an approach that offers a balance of those two extremes. We must protect the interests of individuals and companies that create truly new, novel and useful inventions.
But at the same time, we need to protect the interests of innovative communities, creative ecosystems -- groups that are not incorporated or chartered, but that nonetheless are engaged in genuine -- and genuinely important -- innovation. We need expanded notions of ownership, for a post-industrial world.
We must recognize that open standards can improve interoperability and expand the global infrastructure, accelerate the pace of innovation, and create new opportunities for economic growth.
Perhaps we should think less about intellectual property and more about intellectual capital -- assets that are leveraged and used to create value. Those who create the assets benefit, of course -- the wider the adoption, the greater the benefit. But rewards also come to those who are quickest to capitalize on intellectual assets and bring innovative solutions to market.
This won't be easy, I know. U.S. patent policy is among the most restrictive in the world. Businesses and universities continue to stockpile patents and adopt licensing policies designed more to generate income than to share and expand knowledge. We must work together -- government, industry and academia -- to resolve these issues for our common good.
A few weeks ago, in Washington, D.C., John Kelly led a gathering of IT, university, and government leaders in an open dialogue on intellectual property and IT collaboration. The intent was to agree on principles to promote and implement open collaboration practices" between universities and the IT industry.
We are grateful to Dr. Peterson for his contributions to those discussions. And we hope this will be a first step toward a new model of collaboration that may one day resonate throughout the industry.
Finally: We must focus on developing the next generation of innovation leaders. Dr. Jackson has been a passionate advocate for incenting more students, particularly women and minority students, to pursue careers in science, engineering and technology.
We must marry their technical talent with strategic expertise. Technology is now a central component of business strategy. In fact, it is the application of technology to business designs and core processes that is helping enterprises around the world prepare to compete in a globally integrated economy. And it's this combination of technology with strategic insight that produces innovation.
For example, some of today's most innovative companies are combining technology with sophisticated business analysis to reimagine the enterprise as a collection of discrete components.
Then, when you build on top of a standards-based infrastructure, these components -- think of them as high-tech Lego pieces -- can be infinitely combined and recombined, continually keeping the enterprise ahead of market changes and opportunities.
This technique -- we call it Component Business Modeling -- is helping scores of our clients, in electronics, automotive, financial services and many other industries, determine where they are competitive and where they are not ... how they should structure themselves for optimum performance ... and where they should target their investments for maximum return.
Our future innovation leaders must come to us prepared not only with technical expertise, but with the strategic acumen necessary to spark truly innovative ideas.
RPI and IBM are at the forefront of a new academic discipline -- called Service Sciences, Management & Engineering -- that brings together the fields of computer science, operations research, industrial engineering, management sciences, and social and legal sciences. Through this multidisciplinary approach, we intend to develop the skills required in an industry that relies increasingly on the fusion of business insight and technology.
But, as Dr. Jackson has pointed out, preparing the next generation of innovation leaders requires a national will.
Our duty must be to recruit more students, particularly young women and minority students, to science and technology careers ... to persuade key policy and decision makers to reverse the declines we have seen in education and research funding ... and to inspire a renewed commitment to innovation as our national priority -- and our birthright.
Ladies and gentlemen, the opportunities are too important, and the economic stakes are too high, for America to compromise its longstanding commitment to innovation. IBM is proud to be doing our part to advance innovation on behalf of the businesses, governments and communities we serve around the world. And we are delighted to have Rensselaer Polytechnic Institute as our partner in this vital work.
If I could leave you with just one, final message this afternoon, let it be this: In the 21st century, innovation is not a nice-to-have. In an era when commoditization happens at unprecedented speed, innovation has become an economic and societal imperative. And it is a collective responsibility -- business cannot do it alone. Neither can universities. Neither can governments.
Innovation requires all of us, working together as a society ... the American society, and the global society. If we demonstrate that kind of collaborative leadership, the opportunities are ours for the taking. And the benefits will be ours to share.
Thank you again for the tremendous honor you have bestowed on me today. And thank you for partnership.
