By Prof. Kevin Sharer
By Prof. Kevin Sharer

As he was driving to meet a schoolmate acquaintance with an intense and deep experience base in politico-military affairs, he wondered what to talk about. They had met a few times, had friends in common, but no deep shared experiences or obvious common interests. Maybe the meeting was about fundraising given the new person’s position. As he was leaving home for the drive up valley, the TV announced the electrifying news that the acquaintance was being considered for high national office. After some ice breaking banter, the visitor is asked what he thought. Should I go for it? Can I do it? This was a person of deep experience in government, had worked with and knew the lead candidate well, and had good political and organizational sense with decades of significant leadership experience. More importantly, he was a person of strong character, keen intelligence, good judgement, and a healthy ego grounded in balanced confidence and curiosity rather than arrogance.

The visitor without hesitation said that he should go for it and the nation would be lucky to have him serve again. Then the surprise. With real seriousness of purpose, the visitor was asked “what is your advice?” What could a businessperson tell someone of this range of experience on the world stage? He asked the prospective candidate whether he understood the importance, genius, productivity, and uniqueness of the American innovation ecosystem and how it powerfully differentiates the American system from all others. Why does America dominate in the technology and life science spaces, for example? These were not jingoistic or delusional questions, but facts grounded in world market share, economic value, and dynamism. The visitor was greeted with a stare of curiosity but only minimal awareness, so he bore down. The visitor decided to lean in and in the most direct and memorable way he could tell the candidate not to do harm to the ecosystem and in fact defend and support it. This thought was conveyed in a short, graphic, and declarative sentence that could be quotable and useful to the candidate later, the visitor hoped.

So, what is this innovation ecosystem, why is it important, and how is it that despite ongoing attempts to replicate it, other countries still struggle to match it? One of the key HBS learnings is developing the ability to assess unfamiliar, complex, and interdependent systems to understand the core elements and how they interrelate. Sometimes the systems are doom loops where the negative elements reinforce each other, negativity accelerates, and the enterprise implodes. Think Valeant Pharmaceuticals. Much less often the elements are powerfully positive and reinforce each other to both defend the system from the inevitable external challenge, self-correct, and continue to deliver value. This virtuous loop is what thoughtful leaders seek to achieve and sometimes for a time might, but sustaining one over decades is incredibly difficult. Google and Facebook are having moments now for sure, but so did IBM, Microsoft, Pfizer, and others. Yet, the American innovation ecosystem seems to last. Why? The system is an interlocking and powerful combination of scale, national values, relatively free markets, vibrant capital markets, laws and the judicial/legal system, government policies, the higher education system, and national aspiration that throughout our history has attracted some of the best and brightest in the world to our shores and system. This system is not explicitly talked about much, yet it is central to the vitality and dynamism of our system. It is worth an aspiring HBS grad’s time to understand its composition and power.

So, what is this innovation ecosystem, why is it important, and how is it that despite ongoing attempts to replicate it, other countries still struggle to match it? One of the key HBS learnings is developing the ability to assess unfamiliar, complex, and interdependent systems to understand the core elements and how they interrelate. Sometimes the systems are doom loops where the negative elements reinforce each other, negativity accelerates, and the enterprise implodes. Think Valeant Pharmaceuticals. Much less often the elements are powerfully positive and reinforce each other to both defend the system from the inevitable external challenge, self-correct, and continue to deliver value. This virtuous loop is what thoughtful leaders seek to achieve and sometimes for a time might, but sustaining one over decades is incredibly difficult. Google and Facebook are having moments now for sure, but so did IBM, Microsoft, Pfizer, and others. Yet, the American innovation ecosystem seems to last. Why? The system is an interlocking and powerful combination of scale, national values, relatively free markets, vibrant capital markets, laws and the judicial/legal system, government policies, the higher education system, and national aspiration that throughout our history has attracted some of the best and brightest in the world to our shores and system. This system is not explicitly talked about much, yet it is central to the vitality and dynamism of our system. It is worth an aspiring HBS grad’s time to understand its composition and power.

Scale is obvious in our huge market size and scope as a base to start and then expand to much of the world. Our values celebrate success, encourage risk-taking at all levels, and attempt more than anywhere else to operate as a meritocracy. We have a ways to go in having a gender blind and color blind meritocracy, but we strive mightily. Demonize success, overstep in taxes, or overburden in regulation and the light dims. Government primes the pump and establishes the frameworks and rules. The government invests heavily in basic R+D, has an excellent IP system, a contentious but relatively transparent governance system, and the rule of law. Weaken patents, gut R+D, or reinforce crony capitalism and the system weakens. Universities want their IP to find a way to market and encourage their faculty to do so. This is very, very unusual in most parts of the world and is too often an unrecognized asset. MIT is the world champion that many places try to emulate. Stop research grants or loosen scrutiny and the seed stock withers. Our capital markets are the fuel to power the engine. Venture capital is imperative and the capital sources willing to back it and take the risk. On any comparative basis, our VC industry is unmatched and is behind so many successes. The public market rewards, encourages, and recognizes success in a way that broadens the ownership base and provides capital for growth. This seems so basic and clear, but few systems can match it. Relax transparency rules, weaken governance, or allow overly creative accounting and the markets lose confidence in the new offerings and capital dries up. Overly protect the entrenched firms by law, regulation, and favoritism and ossification sets in. The last ecosystem element of attracting the best and brightest to our shores has been the bedrock of the American ideal since the beginning. We aspire to be a nation of ideals, laws, shared beliefs, and the future. Everyone since the Native Americans has immigrant roots, comprising well over ninety-nine percent of the population. Scan the leaders and founders of our most dynamic new companies to see the evidence. We are in danger of failing to protect and encourage this most vital of all elements of the innovation ecosystem. A discussion for another day. The candidate got it. America’s economic vitality supports our people, feeds our aspiration, and makes possible our potential for positive contributions to the world. This remarkable system is centrally dependent on the innovation ecosystem. Improve, protect, and nurture it was the visitor’s last comment delivered with all the conviction and persuasiveness he could muster. The look on the prospective candidate’s face and the subsequent minutes of conversation said he got it. Let’s hope so.

Harvard Business School Professor Kevin Sharer joined the HBS Strategy unit in the fall of 2012. Before HBS, he was CEO of Amgen for twelve years and before that Amgen’s President for eight. He has served on the boards of directors of Chevron and Northrop Grumman and is currently on the board of Allied Minds. For decades he was Chairman of the board of the Los Angeles County Museum of Natural History. Professor Sharer is a Naval Academy graduate and has master’s degrees in aeronautical engineering and business.