"Innovation and Leadership in the 21st Century"

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 an excerpt from the speech that Samuel J.Palmisasno, Chairman and

CEO of IBM delivered while he accepted an honorary degree from the Rensselaer

Polytechnic Institute, New York. He spoke at length on Innovation and creating

an ecosystem of innovative communities for global leadership.

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.

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:

• RFID technology and sophisticated order analysis tools that monitor even
  
  the most minute market activity are rapidly leading us toward industry's
  
  holy grail -- absolute balance in supply and demand.
• In developing nations from Asia to the Americas, government investment in
  
  two key areas -- IT infrastructure and education -- is providing new hope to
  
  populations long burdened with poverty and disconnected from economic
  
  opportunity. Although this poses some challenges to the American economy, in
  
  a global society we celebrate progress wherever it advances the well-being
  
  of our fellow citizens.

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.

Finally: We must focus on developing the next generation of innovation

leaders.

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.

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.

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.