Last week I was sent the Siemens report into productivity in Australia. Like the Grattan report that I wrote about a few weeks ago, it has a stern warning about the threat of declining productivity. Like the grasshoper in Aesop’s fable, Australians are at risk of squandering the wealth that is being generated from commodity exports.

The Siemens report is less econometric in the discussion of productivity but it does have the advantage of thinking about where the impovements in productivity might come from and the role of innovation is crytal clear in these projections. Obviously Siemens have a vested interest in these conclusions but I think they are right when they suggest that the game changer for innovation will be digitization and greater power to manage and process information at ever decreasing costs.

My University of Queensland colleague, Mark Dodgson, has been writing about the power of these “innovation technologies” for several years. Marks says that ICT is allowing us to design more elaborate products and services through collaboration, experimentation and simulation. Many organizations now have virtual collaboration rooms where a product can be designed in 3D and the engineers can be anywhere in the world. Simulation alows us to play with designs and fail without cost. This means that innovation becomes a form of play and Mark is adamant that the human mind is hardwired to learn about the world through play. Next week I’ll write more about how simulation and automation can change a business.

There are many implications from the Siemens report but one of these stems from the way that ICT will change innovation collaboration and logisitics. If you think about this carefully it means coordination of innovation and production doesn’t have to be done within a ‘firm’. According to economic theory, firms exist becuase the costs of coordinating production are too great for markets or networks of smaller operators. If ICT has the overall impact of lowering the costs of sharing information and improving the coordination of supply and distribution networks then innovation will truly be an ‘open’ game. In ‘The Power of Pull’, John Seely Brown has noted that innovation races are being won by networks of collaborating companies and ICT is playing an important role here.

Nearly fifty years ago, economic historian Alfred Chandler wrote about the rise of the US corporation as a way of coordinating production in the developing US economy at the beginning of the twentieth century. Over the last 100 years the coordination of innovation has been mainly within firms for the same reason. Chandler called this coordination, “the visible hand” after Adam Smith’s notion of the ‘invisible hand ‘of markets. To quote Richard Langlois (another really interesting economist), ICT is starting to make the visible hand very pale and ghostly.