The alarm clock called innovation



The hallmark of a thriving economy is innovation. Take the Philippines of the 1950s and its jeepneys. Out of the remnants of war came a mass transit system that survives to this day. The old US Army Willys Jeep became today’s ubiquitous jeepney. Sadly, the innovation stopped at the increase in passenger capacity and colorful vehicle designs.

We haven’t innovated on these public utility vehicles since World War II! They are part of the Filipino identity—but they are better off in a museum. Toyota once wanted to collaborate with local jeepney manufacturers on the concept of “Asian Utility Vehicles.”

That collaboration fell through, but Toyota came up with the Tamaraw; which became the Revo, and then the Innova. Now, our rickety jeepneys have been left eating Toyota’s dust. Let’s face it. The most innovative business will win.

The challenge for us in the Philippines is that our companies are driven by financial capital, not innovation capital.

We pour money into established businesses and only those who have deep pockets get to start new or innovative endeavors—if they even bother. This is why wealth and power are concentrated with the conglomerates.

If you look at the United States, their economy is innovation-driven. Capital goes to whoever innovates best; which is why America has had many successful startups.

Consider the conglomerate Alphabet. Just two years ago, it didn’t exist. Now? Well it is only the second most valuable company in the world! They leveraged technology to innovate in the telecommunications and Internet services industries, among others.

Of course, it helps that Alphabet is the parent company of Google! But that aside, Alphabet is also innovative in terms of business structure, because it allows the conglomerate to undertake ambitious projects without sacrificing the group’s chief moneymaker.

Amazon has a market capitalization twice that of Walmart. Even if Walmart has the biggest revenue in the world, investors value Amazon more. For the longest time, Amazon was a losing proposition. Now, it is profitable because it has built a formidable ecosystem of products and services that supports it into the future. Meanwhile, Walmart is investing in data analytics, trying to make its brick and mortar business more relevant.

Now comes Stitch Fix, which uses analytics to curate clothes for their customers. The clothes are delivered to the home for fitting and customers can either return or retain and pay for the clothes as they wish. Just as Amazon defeated Walmart in retail, so is Stitch Fix trying to beat Amazon in the online shopping arena.

Clarion Call
In the Philippines, business process outsourcing (BPO) has been the sunrise industry for a decade. The BPO industry may employ more than a million Filipinos, but over half of them are vulnerable to increasing automation powered by artificial intelligence (AI). High-volume BPO services (i.e., IT support, workflow processes, back-office operations) are prone to substitution.

Once AI reaches an acceptable threshold, it can be readily deployed and scaled very well. AI can replace thousands of call center agents tomorrow and guarantee work delivered 24/7, 365 days a year. With BPO employee churn rates at a high 50%, AI is indeed a very strong value proposition for BPO companies.

It cannot be sunrise all the time! Technology will continue its march. If companies do not innovate, BPO may go the way of the other industries where the Philippines was once a dominant player.

The financial industry is in a similar situation. The Internet has been effective in distributing information, but not in enabling trust. People put money in banks because they trust the institution, and because banks can keep tabs on their transactions. The downside is banks charge a fee for every transaction, such as cutout rates for money transfers.

However, blockchain technology is changing all that. When you transfer digital currency (e.g., Bitcoin), you don’t need to pay the bank cutout rates, which are especially expensive when done across borders. If the Internet can seamlessly distribute media to all online computers, blockchain can do the same thing with currency for institutions of trust.

From Technology to Innovation
Ideas are a dime a dozen. What is uncommon is taking a disruptive idea and turning it into innovation, which unlocks value for business and society.

Where having deep pockets of capital worked for big enterprise in the past, globalization has made these giants vulnerable unless they innovate.

Today, innovation drives capital and not the other way around.

Tesla has a higher valuation than General Motors, despite GM being in the Top 10 of the Fortune 500 and Tesla losing US$330 million in Q4 2016. Meanwhile, Walmart has partnered with Google to compete with Amazon.

In December, AIM will graduate its pioneering class under the Master of Science in Innovation and Business program. We have done everything we could to make sure the bright ideas of our graduates (and believe me there is no dearth of them at AIM!) benefit from every possible opportunity for them to reach the level of innovation. It is now our graduates’ turn to run with it. I am excited to see what happens next!

Matthew Escobido is the Academic Program Director of the Master of Science in Innovation and Business program at the Asian Institute of Management. A graduate of the University of the Philippines and the Massachusetts Institute of Technology, he is an engineer, inventor, entrepreneur, and educator.


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