John Kao: Capitalise on talent and ideas

A little over three years ago, John Kao founded the Institute for Large Scale Innovation (ILSI), whose mission was to design and drive a global agenda for innovation. The institute, which started off with just seven country representatives, today has 42, including the UAE.

Kao is an innovation adviser to several companies, start-ups and nations around the world. He is an adviser to the Clinton Global Initiative, former chair of the Global Innovation Council of the World Economic Forum and a twofour54 board member. He met reporters in Abu Dhabi last month to speak about innovation, and where and how it can be achieved.

Is there a system for measuring innovation activity around the world?

There are systems for measuring innovation activity in countries. In fact, there are so many that you have to say there is no one system that is universally accepted. You have different business magazines, and they all conduct surveys of innovation in countries. But a survey is only as good as the assumptions in it, so we can have a long discussion on methodologies. Clearly, countries such as the United States, Finland, Singapore and the United Kingdom rank high in these studies. If you look at this part of the world and see how many patents are issued per capita, or how much money is spent on research and development, or how many start-ups occur, you would conclude that it is early days for this kind of innovation movement in the region. But this is a part of the world that has been blessed with resources, and the people are smart and very connected to the rest of the world. People don’t talk about this very much, but it has a very important history of achievement and technology that goes back about 1,000 or 2,000 years. I think the future of innovation in the region could be very positive.

Does a country have to be rich and developed to have innovation?

No. There is a new concept called reverse innovation. Usually we think of innovation happening in Boston or London or San Francisco and then spreading to the rest of the world. But now we are starting to see many examples where something is discovered in rural India or in Rwanda, and then it is developed and becomes so valuable that it flows to New York or Tokyo. The innovation that happens in the emerging markets could be very valuable elsewhere.

Does innovation require a capitalist system?

There are many approaches to capitalism. There is Chinese capitalism, there is Russian capitalism and there is Islamic finance and capitalism. It covers a broad range of cultures, but the idea that you can free up capital to be invested in the creative ideas of entrepreneurs seems to be a universal requirement to get a lot of innovation.

For Abu Dhabi’s agenda, how is Abu Dhabi looking at merging the educational institutions with industry of innovation?

There is no question that schools or educational institutions and bridging to business is important, because universities tend to be where ideas are generated, especially in the basic sciences, and then business is where the ideas are commercialised. I know that in Abu Dhabi in particular the effort has been to insource universities, and now you have INSEAD and NYU coming. This is now a global environment, so ideas can be sourced anywhere; patents can be licensed from anywhere, accessing university talent can happen from anywhere. So I think the brick and mortar of universities are important, but I also think there are other ways to playing the innovation game.

How do you see us creating this organic ecosystem for the UAE?

It is very simple. You need capital, you need talent, you need ideas and you need the freedom to mix them up. If you have those, you have the possibility of innovation. If one or more of these pieces is missing, you won’t get much innovation. So talent is here; talent can also be attracted here. Resources are here. My sense is that the pendulum has swung from the feeling there is a lot of money to the feeling that the country has to be careful about money, and be more control-oriented and cut back. I’m not against the idea of financial discipline, but the danger that I see for innovation is that the senior leadership will say we can’t afford innovation now because we have to be concerned about costs. What people need to understand is that innovation doesn’t depend on spending money. Also, in the time of a downturn, it could be among the best times to invest in innovation — so don’t throw out the innovation agenda just because of cost-cutting. Lastly, in a global world, ideas could come from anywhere. You can license and insource ideas from any country, any university in the world, so that is a great advantage for a place such as Abu Dhabi that will never have the scale of a country such as the US with 300 million people. It is, by definition, not going to be possible, so don’t try to be that, try to use other people’s assets.

How do you see venture capitalism in the UAE?

Venture capitalism is important, but you have to have a balance between smart venture capitalism and smart entrepreneurs. It is important to have early stay venture capital that appreciates the value of ideas and where you can size up entrepreneurs, but I think I wouldn’t be in favour of ten venture funds right now, because I’m not sure there is the absorption capacity of entrepreneurs. Have one or two seed funds or have a seed fund under the umbrella of an existing institution, but a real seed fund. In Silicon Valley, people control small amounts of money with no business plans based on an idea and a judgment of character, and it is not because they are reckless; it is because they understand that at the early stages you have to just step forward and say we are going to support this and see what happens. You have to understand that you will probably fail 70 per cent of the times, and that that is OK. Many people can’t accept that, because they think like commercial bankers or people who have never made a mistake in their lives — those would not be the best people for managing innovation.