Speeches

Remarks by IBM Chairman and CEO Sam Palmisano
Delivered at the Council on Competitiveness Annual Meeting
Washington, D.C.
October 30, 2003

It's an honor and pleasure to have this opportunity to lead a very important initiative on innovation.

I'd like to thank Georgia Institution of Technology President G. Wayne Clough for serving as co-chair of this initiative, and of course the many other distinguished members of the Council who will bring invaluable expertise, experience and insight to this effort.

Innovation. It's a fascinating subject. How it happens, where it happens, and why.

Many people like to cite Edison's famous prescription: 1% inspiration and 99% perspiration. And the 99% part is something we feel we can address, right?

But what about that 1%? We tend to treat that as if it were simply magical — not subject to guidance or nurturing, much less planning. It's just human genius, popping up whenever and wherever it will.

However, if we study history, we know that that's simply not true.

There are times and places and certain conditions under which innovation absolutely flourishes. Sometimes, its appearance is explosive, with so much creativity packed into a short span of time that it changes global society and the course of history itself.

We're gathered here to kick off a significant attempt to understand and harness the dynamics of innovation — to manage them — for the good of America and, ultimately, the world.

It's hard to overstate the benefits of innovation. Simply put, innovation:

Spawns new industries Fuels economic growth Creates countless high-value, high-paying jobs And raises the standard of living for people around the globe.

We see example after example of this throughout U.S. History.

Henry Ford's innovation — the mass production of automobiles — led to the creation of a $1.6 trillion global industry that, at its peak, accounted for 4 percent of the US economy. The US auto industry still directly supports nearly one million US jobs.

Ford's innovation also fueled the outgrowth of other industries, such as steel, petroleum, highway construction, trucking and tourism.

An invention that I'm very familiar with — the transistor, first produced by Bell Labs more than 50 years ago — made possible today's $1.3 trillion information technology industry that accounts for more than 2 percent of GDP, employs nearly four million Americans, and has profoundly benefited the way we all work and live.

And we could cite many similar examples — in aviation and aerospace, agriculture, telecommunications, chemistry and medicine — that were the ignition point of growth and prosperity.

There's no question that other nations have their own impressive histories of invention and innovation.

But in modern times, the US stands apart in its record of sustained innovation over decades... across industries... and through economic cycles.

Why? What has made the U.S. an engine of innovation?

Certainly, a number of structural and economic advantages come to mind:

Ready access to natural resources and labor. The skills and work ethic of American workers. Strong capital markets, a long tradition of the rule of law. And finally, the US has benefited from a unique sort of cooperation and collaboration among the federal government, national and military labs, private-sector R&D efforts, research universities and entrepreneurs.

Importantly, underpinning all of these structural and economic advantages is this fact: The US has always encouraged and rewarded risk-takers.

So, for all these reasons, the U.S. has enjoyed what has been, to date, a unique and highly successful innovation ecosystem.

However, we are at a critical moment. Because if we're not careful, the US will fall out of step with the new realities of innovation. If that were to happen, the innovators and risk-takers would go elsewhere. Because today they can.

What new realities do we face?

Certainly, we're facing economic realities.

Because of the excesses of the '90s, there's a new mood in this country that puts us at risk of creating a hostile environment for business investment and for the creation of new businesses.

I am concerned about these issues. But we need to distinguish between near-term, cyclical challenges and more fundamental, systemic change. Right now, the greatest challenge we face is that the very nature of innovation itself is changing.

Innovation is not the same as invention. Invention is the starting point — important, to be sure. But true leadership requires a focus on the pull for innovation, not merely the push of invention.

I say that without reservation, even though I am part of a company that in the past ten years has received more U.S. patents than any other. We understand the importance of R&D, of raw invention. But we also know that today, invention alone is no longer sufficient to deliver value — or to win.

Innovation occurs at the intersection of invention and insight. It's about the application of invention — the fusion of new developments and new approaches to solve problems.

Let me go back to the transistor.

The transistor was an invention — an invention actually to amplify sound over long-distance phone lines. But then many people, companies and institutions took the transistor and applied it in many ways. Texas Instruments and Fairchild Semiconductor applied transistor technology to put whole circuits on a chip of silicon. It was the first computer chip. That made possible electronic mainframes, servers, PCs and the Internet Those advances, in turn, were applied to business, education, healthcare, national defense.

All of this was made possible — not just by the invention of the transistor — but by its application and exploitation across multiple industries. It was the result of the intersections of invention and the needs of business and society.

I'm often asked what the next transistor will be.

What's the "next big thing?" My answer: there won't be one "next big thing." There will be many.

That's because we see exciting developments across many industries, in many fields of human endeavor. We see a proliferation of intersections between invention and insight.

The potential for innovation is only magnified by the emerging knowledge-based global economy. Today, the basis of innovation is less focused on things, and more on ideas, collaboration and expertise. And in our restless, 24-hour networked world, innovative ideas can move around the world with the click of a mouse.

Now more than ever, innovation is occurring within a global — not just a national — ecosystem, with multiple points of intersection among business, government and academia.

The innovations that may emerge from this ecosystem — from the connections and intersections of new ideas — are very exciting. Let me illustrate this by looking at biotech:

We marvel at the mapping of the human genome in our lifetime. But the truly important innovations await us — when we intersect genomic knowledge with new medical protocols and new pharmaceuticals, the latest developments in supercomputing and data modeling, and new healthcare delivery systems.

That's when we'll see a revolution across those multi-trillion-dollar industries and fundamentally transform the quality and longevity of life. The mapping of the genome is just the start, the ignition point.

This is not fantasy. Today, at the Mayo Clinic, researchers are developing a system that maps an individual patient's DNA... and then uses advanced data analysis technology to rapidly analyze the wealth of available public health data and clinical information stored in databases around the world. The result? Not only a more accurate diagnosis, but the physician discovers best practices for specifically treating the individual patient.

But innovations like these require — not just one invention or discovery — but the fusion of developments across multiple industries and fields.

I could go on to describe similar intersections of invention and insight in energy, telecommunications, the public sector, and certainly in the IT industry.

Some of the nation's most important, vibrant companies were born at the intersection of invention and insight. Dell, eBay and Wal-Mart, for example. Each were made possible by the application of new ideas and technologies to serve customers in innovative ways.

The point I am making is that the potential exists to crank up the engine of innovation across many sectors of the economy.

The benefits are self-evident. But let me speak specifically about one — jobs.

As part of the preparation for this initiative, we commissioned a study on global employment. The study aggregated job data from national and international sources and made projections based on industry-specific and global economic trends.

What did we find? The 42 industries represented on the Council on Competitiveness alone will create nearly 13 million jobs worldwide over the next two years, and nearly 95 million jobs worldwide over the next decade.

We believe that the preponderance of those jobs will be created as a result of innovations that are occurring, and will occur with increasing frequency, around the world.

Just one of these industries — information technology — will create 1.5 million new jobs in software and services alone over the next two years. Much of that job creation will occur in the industry's most innovative segments — high-value services, middleware, Linux and open standards-based systems.

In just one company within that industry — it happens to be the one I'm most familiar with, IBM — we need at least 10-thousand new positions in key skill areas next year alone.

We're also committing $200 million dollars to train and educate 100-thousand existing employees to compete for these new high-skill jobs.

So, while it's extremely difficult to forecast anything ten years out, by any measure, across all of these industries, we are talking about millions and millions of jobs.

The question is: where will those jobs be?

It is a vital question, because today, innovation — and job creation — can occur almost anywhere in the world.

This is due to the economic and technological shifts I described earlier, but also because other nations are catching up.

China, India, South Korea and other rapidly developing nations are replicating the structural advantages that historically have made the US the center of innovation.

It is important to understand that these nations are becoming very competitive — and not just in wagedifferentials.

They are investing in education and job skills. They are teaching their citizens the languages of modern commerce — English, but also the languages of software, genomics, finance. They have built modern network infrastructures. And they've entered into multilateral trade agreements that allow for much freer flow of goods, services and ideas. They have taken their place in the global free market system.

How will the U.S. — and, frankly, all other developed nations — respond? By lowering the standard of living for their citizens? By erecting barriers and impediments? That would not be consistent with the American ethos.

Instead, we believe the United States must again raise the bar — to take the steps necessary to keep the nation at the forefront... to continue to offer the most fertile and attractive environment for innovation in the world.

We can't — shouldn't — regret improvements in other nations' competitiveness. Their people deserve to participate fully in the benefits of innovations.

But we certainly can — and should — respond to increased competition by moving to the next level ourselves.

To help move us in that direction, the Council on Competitiveness is today announcing the National Innovation Initiative, as you've heard.

Georgia Tech President Wayne Clough and I will lead this effort to create a strategic US policy agenda for innovation.

Our challenge is to lay out a framework for U.S. innovation leadership.

We'll look beyond the usual tools for economic stimulus such as monetary and fiscal policy. Our scope will be wide-ranging. And the end-result will be an integrated set of actions aimed at driving innovation at all levels of the economy.

What are we going to do?

Wayne and I will convene a steering committee made up of distinguished representatives from business, academia, labor and government. These leaders will, over the next several months, engage in dialogue all over the nation and analyze specific issues related to innovation.

We'll issue an interim report on preliminary findings in 6-9 months.

And in 12-15 months, we'll all get back together for a National Innovation Summit, where we'll discuss our policy recommendations and begin the process of convincing business executives, policy makers, university leaders, labor leaders and top researchers and scientists to implement the recommendations.

There's a lot to be done ahead of the Summit. There are important questions to grapple with and answer for everyone in this room today.

Here are just a few:

To unleash the next wave of innovation, we need a definition of innovation for the 21st century. How can we go beyond traditional notions of "R&D" and intellectual property and identify and nurture the intersections that lead to innovation? Are there ways to drive innovation at the intersection of services and manufacturing, and at the intersection of life sciences, healthcare delivery and IT? What about metrics? How do we measure innovation? How do we identify the technologies, applications, disciplines, investment and training strategies that are most supportive? How do we measure success? What does the changing nature of innovation mean for skills? What skills are needed in life sciences, energy, new materials or nanotechnology? Are US universities nurturing and creating the new disciplines that will likely emerge -- not from within an established field, but from collaboration across industries, professions and fields? Government has a unique role, but does it have sufficient focus on innovation, not just basic research? What can governments do to nurture strategic partnerships among the private and public sectors, universities and labor? Are we building the national infrastructure necessary to participate in the global innovation ecosystem — so that developments created anywhere in the world can be capitalized on in the U.S.? And finally, investment — how do we finance innovation? How do we make the best use of tax dollars earmarked for innovation? Can we rekindle private sector R&D investment? How can we strengthen our venture capital markets?

This initiative could not be more timely.

I believe — and I'm not alone — that innovation is the best way to spur job growth.

I have no crystal ball to tell me what industry or industries will create the next boom in job creation. But I'm confident in predicting that innovation will be the engine.

In the long term, our efforts will help preserve and extend America's innovation and economic leadership, as well as this nation's equally impressive record of creating high-paying, high-skill jobs for American workers, and providing them with rising standards of living and ever-improving quality of life.

And something more. Our tradition of opening up new possibilities and new frontiers that offer hope — not just to the residents of this portion of the New World, but to citizens of the whole world.

I urge you all to join us in this effort and partner with us in the initiative we are announcing today. Thank you very much.