The Geography of Innovation
Does it matter?
Posted by Jim Eckenrode, executive director, Deloitte Center for Financial Services, Deloitte Services LP, on November 4, 2013
Innovation. Some may view it as yet another over-hyped buzzword. Others view it as the key to survival in an ever more expanding and dynamic environment. Lately it appears much more of the latter than the former, financial services executives have a real interest in innovation and in particular, how to make it happen.
As a way to consider that problem from a different vantage point, there are a couple of dots that I’d like to connect here. First, let’s examine overall innovation trends in the United States. To do that, I refer to an interesting article in The Atlantic, entitled “Where America’s Inventors Are.” The article states that “Ever since the economic crisis of 2008 and perhaps even before, a growing chorus of economists have argued that the pace of American innovation has slowed. …”1 Data from the article seem to support that notion – in part. Since the article goes on to say that, “Despite their limitations, economists use patents as the standard measure of innovation,” I took a look at U.S. patent-application volume, as per the U.S. Patent and Trademark Office, that clearly shows a bumpy ride from 2005 to 2009, but also a strong rebound in 2010-11.2
For financial services firms, the story is a bit different. The chart below shows patent volumes for financial services firms, by type, since 2000.3 Seems like good news and somewhat counterintuitive as well. Innovation, at least by one measure, seems to be growing rapidly in the industry and doesn’t seem to have been affected by 2008’s economic downturn.
But could it be better? As innovation is now a rising top-of-mind challenge in financial services, how, in fact, could this positive trend be improved? Well, one key insight might come from a book called “Where Good Ideas Come From,” by Steven Johnson. In it, the author asserts that good ideas come from collisions of what he calls “slow hunches,” and that those collisions more often happen in spaces where ideas can mingle.4 Which brings me back to the article about where America’s inventors are. Consider the two charts below: the first shows the number of patents granted, by year, for the 10 most innovative cities in the USA. The next chart shows the number of financial services patents granted in each of those 10 cities in 2011, the most innovative year for financial services, at least in the last dozen years,5 as shown above. Thousands of patents are issued in these ten cities, representing almost half of the U.S. total, yet only a handful from financial services firms.
Now, all this must be taken with a few tips of the saltshaker. Clearly, some of these cities focus their innovation outside of financial services: San Jose and San Francisco in high tech, Boston in tech and biotechnology, Chicago in industrial and consumer goods and Detroit in automotive.
Nevertheless, financial services firms are constantly examining best practices from other industries and it’s also pretty clear that technology in general is becoming much more of a force in the industry. With all the talent these firms have and need in order to deal with new challenges and opportunities, is it worth noting that they’re not attempting to innovate further in areas where a good amount of innovative thought is already happening? Could they benefit from making good ideas collide perhaps more than they do today?
Food for thought.
1 Florida, Richard; Where America’s Inventors Are; www.theatlanticcities.com; Oct. 9, 2013
2 United States Patent and Trademark Office; Patenting In Technology Classes, Breakout by Origin, U.S. Metropolitan and Micropolitan Areas, Deloitte analysis
3 United States Patent and Trademark Office; Patenting In U.S. Metropolitan and Micropolitan Areas, Breakout By Organization, Deloitte analysis
4 Johnson, Steven; Where Good Ideas Come From, Riverhead Trade Press, 2010
5 United States Patent and Trademark Office; Patenting In Technology Classes, Breakout by Origin, U.S. Metropolitan and Micropolitan Areas, Deloitte analysis
As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.