The Global Innovation Machine:
Fueling New Growth in Tough Times
Is your business ready for the opportunities created by
new global economic realities?

In Perthshire, Scotland, against the majestic backdrop of the historic Gleneagles^® Hotel and its challenging golf courses, 176 government and industry leaders gathered at the Forbes CEO Forum to address historic economic challenges and the reshaped landscape of opportunity ahead.

Yes, the economic terrain has changed, said leaders in government, energy, education, tourism, luxury products, logistics, sustainability, banking and financial services. And there are more changes on the horizon. Yet they emphasized the need to view the past year’s lessons through the lens of history, and to focus on the limitless potential of innovation.

“The skills, ingenuity, training and expertise of the human capital that you develop will determine the long-term prosperity of the economy, and indeed will determine the long-term prosperity of the world,” said Right Honorable Alex Salmond, MP MSP, first minister of Scotland, as he opened the forum sessions.

It’s highly appropriate that the CEO Forum chose Scotland this year, said Salmond. “During Homecoming Scotland 2009 all year long, we celebrate the game of golf, whisky, the legacy of Robert Burns and Scottish culture in its widest form. But crucially and importantly, we celebrate the contribution of Scotland to scientific advances, to innovation and to economic progress.”

The Global Economy: Where Are the Bright Spots?
Financial trauma around the globe is shaking public confidence. Has the economic comeback started, and what challenges remain?

“The worst is behind us, but we have not seen everything yet,” noted Erik Berglöf, chief economist and special advisor to the president, European Bank for Reconstruction and Development (EBRD). “We are not yet at the end of the consequences of this recession,” agreed Neelie Kroes, commissioner for competition, European Commission. Other major points made were:

• Reduced taxes will encourage entrepreneurship. “We have seen tax reduction being applied very effectively in Eastern Europe,” said Berglöf.


• There is a need to provide loans, especially for the small and medium-sized enterprises to go on with their economic activities, Kroes observed.


• Innovation is essential. “One certain thing we need to recover and move out of recession is innovation,” said Salmond, noting Scotland’s heritage of innovation. “This is the country which gave the world, among other things, the television, the telephone, penicillin, the MRI scanner, radar, the microwave oven, the postage stamp and the bicycle.”

Pursuing Alternative Energy and Efficiency Goals

Corporations, governments and researchers are searching for new sources of energy while seeking to protect the environment. New energy-efficient technologies and alternative energy sources are on the rise. Scotland, for example, has set a goal of obtaining half of its electricity from renewable sources in a decade.

“We are interested in the approach of carbon capture, and in the development of renewable energy,” said John Swinney MSP, Scotland’s cabinet secretary for Finance and Sustainable Growth. “We expect to comfortably exceed our renewable energy targets over the next 10 years.”

“The global potential for alternative energy is absolutely enormous, and it allows us to deal with two clear issues,” Swinney continued. “One is the contribution we can make to tackling the requirement for climate change, and second is the contribution towards energy security and supply. That transferable strategic vision is very important in terms of what can be achieved.”

The push for alternative energy sources and the pursuit of ambitious energy goals are both expected to continue.

• Scotland is using its natural geography to its advantage. It recently opened the largest onshore wind farm in Europe, and another wind farm now in the works will be even larger when complete, Salmond noted.


• Peter Barker-Homek, CEO, Abu Dhabi National Energy Company (TAQA), reported that the UAE has a stated objective of having 50% of its primary energy coming from renewable sources by 2050. “By 2020 the goal is to have reached the 20% mark, which is in line with Europe’s ambitions.”


• We need a portfolio of renewables and other sources, said the Honorable Bob Carr, former premier of New South Wales, Australia. “Not just nuclear, not just wind, but a portfolio.”


• Michael Weinhold, CTO, Siemens Energy Sector, Siemens AG, said energy efficiency is about raising awareness. “It’s academia, it’s politicians and social groups, and it’s industry. These three forces have to work together.”

The Global Talent Pool: Retaining the Best And the Brightest

What strategies make sense as companies try to keep and motivate talent during tough times? Panelists weighed in on this issue from the perspectives of higher education and international business.

“The last thing you want to do is cut the budget for developing talent for your employees,” said Hervé Coyco, a consultant and an affiliate professor at HEC School of Management. “If you stop training your people during a business lull, that means you give up on your future.”

Education provided to employees in developing countries can have additional benefits, said Chris Dedicoat, president, European Markets for Cisco. “We have had half a million students in Cisco Networking academies around the globe, and this continuing education is a quality deliverable that large organizations can bring to governments. Companies that offer training can truly help to develop value for a nation’s economy.”

Does an internationally diverse company have an automatic advantage when it comes to attracting and keeping talent? Researcher Michael Segalla, Ph.D., HEC School of Management, Paris, thought it might when he surveyed a group of elite European business school graduates. He was surprised to learn that it didn’t matter. “We learned that what graduates really wanted was a people-centric company. They wanted to be allowed to make errors, and be creative. They sought companies committed to the environment, to philanthropy, and to good workforce practices. That’s what turned them on. We found that interesting because if you’re not offering that, you’re not going to be able to retain or attract the talent you want.”

“We are interested in the approach of carbon capture, and in the development of renewable energy.
We expect to comfortably exceed our renewable energy targets over the next 10 years.”

John Swinney MSP, Scotland’s Cabinet Secretary for Finance and Sustainable Growth

Transformational Technology

Technology has a growing role in nearly all sectors, including education, energy, health care and entertainment. In Silicon Valley, in the Silicon Glen of Scotland, at research labs in Shanghai, Seoul, Singapore and beyond, the next generation of high-tech breakthroughs is in incubation.

“The most important thing you can do in your company is to establish a culture that gives people the freedom to innovate,” said Ron Tolido, chief technology officer for Capgemini, Northern Europe and Asia Pacific.

Crawford Gillies, chairman for Scottish Enterprise, emphasized the importance of investing now in technology for the future. “History shows us that market share changes hands in all sectors more when times are tough than in good times,” Gillies noted. “Financially constrained companies will lose share. So will companies that take a knee-jerk reaction to the downturn, slam on the brakes, make cuts across the board in an indiscriminate way, and those that are simply frozen—unable to decide what action to take.”

Gillies sees great potential in the current work taking place in Edinburgh in the area of bioinformatics. “This brings the power of informatics, computer science, and data analysis together with molecular biology to solve such problems as DNA sequencing and protein sequencing. In the future, a lot more technology development is going to come from bringing together different disciplines.”

Panelists shared a number of other observations and accumulated wisdom about the technology front.

• During the 2001-2002 downturn, semiconductor companies Intel and AMD were going head to head,” Gillies said. “Intel invested its way out of the downturn—investing in technology, capacity and advertising. I’d suggest that successful companies coming out of this recession will follow a similar pattern.”


• Semiconductors continue to shrink. “I am fairly confident it will be another decade and a half at least before technology runs into the end of Moore’s law,” said Warren East, CEO of ARM. “In the meantime, there are people developing replacement technology for semiconductors.”


• Watch for developments in biofuels, said Steen Riisgaard, president and CEO of Novozymes. “It’s possible next year. Not only will we be able to use agricultural waste to substitute 25% of the global demand for gasoline, but that will also open a complete and new chemical industry based on sugar rather than petroleum.”


• New social collaboration tool Google Wave is significant because it has the potential to give a real boost to the way we work and deliver solutions, added Riisgaard. “That’s very crucial since we need to be creative and find alternative resourcing if circumstances dictate.”

Heritage vs. Innovation: Clash or Convergence?

Capitalism, more than anything, is an exercise in creativity, said Quentin Hardy, national editor for Forbes. “History and heritage give us our context. They give us the raw materials. They give us the type of talent we will be, and they give us market information about what we have at hand and what we might do with it. Then the creativity comes in. We ask, ‘How do I use this and change it going forward?’”

So is there a perfect balance between honoring heritage and embracing innovation?

Edward Dolman is CEO of Christie’s International, founded in 1766. “Heritage is a double-edged sword,” he noted. “It is a fantastic supporter of a brand. Whilst heritage is incredibly important to us as a company, as are integrity and expertise, innovation is more. At Christie’s, there has been a massive revolution and change over the last 10 or 15 years. If we hadn’t embraced the Internet, if we hadn’t moved into new markets, if we hadn’t started selling art that perhaps some of us didn’t even consider as art 10 years ago, and if we hadn’t moved into new markets like Beijing, we would be dead.”

“If you innovate with no regard whatsoever for where you’ve come from, and for the markets you’re operating in or the government agency you’re working with, you may risk repeating the mistakes of history,” said Mark Leishman, private secretary, TRH The Prince of Wales and The Duchess of Cornwall. “Instead, you make sure the connections are strong and that you innovate in terms of creating permanency rather than relying entirely on quick-fix solutions.”

“One of the things that has come out of the recession is that people are beginning to look back at the past to find its lessons,” VisitScotland’s chief executive, Philip Riddle, OBE, observed. “They’re looking for authenticity and quality of life. They’re seeing that life is perhaps not about accumulating material assets, and that perhaps there’s something else to life.”

The year-long array of events and experiences packaged as Homecoming Scotland 2009 successfully taps into visitors’ quest for a sense of identity and heritage, Riddle explained. “We don’t deliver it by saying, ‘Dear Tourists: Come and take pictures.’ We deliver it by saying ‘Come to Scotland, meet the people, feel what’s going on here. See the landscape. Have an experience that will change your life.’”

The skills, ingenuity, training and expertise of the human capital that you develop will determine the
long-term prosperity of the economy, and indeed will determine the long-term prosperity of the world.

Right Honorable Alex Salmond, MP MSP, First Minister of Scotland

Financial Innovation: What’s Next and Who Benefits?

The profit model of Wall Street has been decimated by the need to shore up capital and reduce risk and leverage. Some say the Golden Age is gone. Yet the Wall Streets of the world will find a way to thrive. The next generation of financial innovation is in the works.

“Financial innovation has gotten some bad press lately. But the irony is, we’re actually going to need a lot of customer-friendly innovation in investment markets—especially solutions that help lower volatility in retirement portfolios and assure lifelong incomes once retired,” said Robert L. Reynolds, president and CEO, Putnam Investments. “At the same time, we’re seeing fresh energy in traditional, plain-vanilla assets like long-only equity and fixed income. Credit markets that were frozen solid in the fourth quarter of 2008 have been producing equity-like returns at much lower risk this year. And even though the equity indexes are just getting a small bit ahead on a year-to-date basis, many active managers are just crushing the indexes—getting 3% or more year to date. This success by active managers is not yet getting the credit they’re earning. But I think that will change.”

Besides a better focus of innovation on customer needs—and increasing recognition of the value of active management—Reynolds expects to see a lot more disclosure. “Sunshine is the best disinfectant. Investors want more disclosure. And disclosure is also the best way to rebuild trust. So that’s something we should all welcome.”

“Three situations lead to innovation,” said Susan Rice, managing director for Lloyds Banking Group Scotland and chief executive and chairman, Lloyds TSB Scotland. “One of them is a vacuum in the market. Another is a profound change in the environment, which relates to regulation, because it’s undoubtedly the case that we will get new, different and more encompassing regulation of more financial products going forward. The other thing that has created some innovation in financial services has been the quest for value.”

Eyes on Emerging Economies

Brazil, Russia, India, China—the BRICs have fully emerged, offering lessons and caveats to the next generation of nation-states eager to succeed them: South Korea, Mexico, South Africa, Turkey, the Czech Republic and Southeast Asia siblings like Vietnam and Cambodia. Panelists discussed some of the issues to watch in these arenas.

“When we look at BRICs, I think most people think this is a group of high-economic-growth countries which have a lot in common,” said Timothy Beardson, chairman, Albert Place Holdings Limited. “When we actually look at the countries that form the BRICs, yes, to an extent, China and India fall into that category. But it’s a little bit difficult to see Brazil in that way, as it’s grown only about 3% over the last ten years. That’s not exactly the sort of high growth that we think of in developing countries.”

Russia has a different situation, said Beardson. “Although it’s had the same sort of growth as India over the last decade, I would argue it’s for very different reasons. The sort of things that Russia makes that people want to buy are energy, timber, natural resources and arms. Look at Russia’s relationship with China: China sells manufactured goods to Russia, and buys gas and timber. In other words, Russia has assumed somewhat the position of a colony and China is assuming the position of a developed country. It’s interesting to see that relationship.”

Bruce Gardner, managing director, Multinational Logistics Partnership (MLP), believes that the one thing that unifies the BRICs is that they’re trying to diversify. “There’s not a solution to that problem today, but in some respects they’re opening the dialogue. They’re trying to talk about the options and how that’s going to move forward.”

In his remarks at the end of the final discussion session, Hardy summarized the forum’s key message: “As we look at what we hope is the tail end of an extremely difficult period, we are all seeking ways to understand the world better, and to engage in creative profit-making activities. As decades—and even centuries—of experience have now shown, there is no better way to deliver a better quality of life for the people in this world.”