Talking Innovation with Peter J. M. Nicholson
This is part of my series on thought leaders in the innovation space. Check out the end of this article for links to others in the series.
Let’s start with a great anecdote that Peter Nicholson shared with me. When Elon Musk was just a student at Queen’s University in Ontario, Peter was working for a big bank in Toronto. Elon called up Peter out of the blue and said he was looking for a job for him and his brother. They had lunch, and Peter ultimately gave Elon a job. (“I’ve never known anyone who had the combination of vision and determination,” he says.)
As this tidbit indicates, Peter is a fascinating guy to talk to, whether about innovation or anything else. With his unique expertise in government policy, education, and business, our conversation on innovation took unexpected twists and turns.
Before we dive in, here’s some background: Peter was born and raised in Nova Scotia, educated in physics and mathematics, and has served in numerous posts in government, business, science, and higher education. His public service career included positions as Deputy Chief of Staff, Policy, in the Office of the Prime Minister of Canada and as Special Advisor to the Secretary-general of the OECD in Paris. His business career has included senior executive positions with Scotiabank and with the telecom holding company, BCE Inc. in Montreal.
The Drive-Through Window
From the very beginning of our conversation, Peter took me through an equation-filled journey of economics. It is a perspective on innovation that we rarely see. As the former policy strategist to the prime minister of Canada, he has a more global view that is very intriguing.
The equation that he shared with me is called The Growth Accounting Equation, and it’s used to measure how different factors influence economic growth. This equation was relevant because Peter was talking about his view that: “Innovation is really the fundamental driver of economic growth…[This is] because it is the ultimate source of productivity growth.”
However, Peter was quick to clarify how he defines productivity; he doesn’t mean people working more: “The notion of productivity conjures up bad images for workers …People misunderstand it as: ‘I am being driven to work longer hours, do more for less?’ And it doesn’t mean that at all, it means: getting more valuable output from the unit of labor input. It doesn’t mean working longer or harder. It means working smarter.”
“[Productivity] doesn’t mean working longer or harder. It means working smarter.”
He gave an excellent, and unexpected, example of this smarter, more innovative way of doing things — the drive-through window. “Somebody got the idea that if you knocked a hole in the wall, and put in a bit of cheap communications equipment and hired an extra person…you could enormously increase the seating capacity of your restaurant without any extra cost. So, that was a big win-win. The capital input is very small. There’s a little bit of extra labor that you have to put in, but the output at the end was vastly exceeding those inputs.” To Peter, this is one of the defining characteristics of innovation: when the rewards greatly outdo the money or effort.
Lessons from Canada
When we hear about innovation today, we often get a very U.S.-centric point of view. But, because Peter is Canadian, he shared his thoughts on the innovation space in Canada and, particularly, how it has been shaped to where it is today: “Canada’s always had terrific technological competence…But, had never, ever developed this focus on the end customer. It is also reflected in the fact that Canada has no consumer brands at all.” Why is this? Peter chalks it up to simple supply and demand.
He says: “Canada’s role in the North American economy has been upstream at the commodity end. The US has some raw materials but it relies hugely on Canada.” Peter sees Canada’s focus on raw materials (vs. end products) as fundamental to where it is today. “The US has got enormously sophisticated end products and Canada has virtually nothing.” He’s even seen how this has impacted the current Canadian start-up world: “I have spent time with incubators in Canada and what you hear…[is that the] biggest gap in start-up culture in Canada is not just marketing but simple sales skills…they have not developed the business skill set that we associate with an end customer focus and a marketing focus and a branding focus.”
“The takeaway from that is that where you end up specializing, over time, has a big effect on the cultural approach to innovation…”
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Getting Fisherman to Agree
I asked Peter to share a story of successful innovation, and in keeping with our conversation, his example was one-of-a-kind. “It’s a good example of a tremendously valuable innovation that wasn’t in the least technical,” he said. The story was about a fisherman. To cut to the chase (and likely to overly simplify!), Peter read about how catch limits in the Canadian fishing industry was leading to fisherman spending too much on bigger and better boats, an oversaturated market, and plummeting prices.
Peter took matters into his own hands: “I said well, what we’ve got to do here is create a property right. And the way to do that is to give each individual fishing enterprise a certain percentage of the quota and then they can catch that in the most efficient way that they want. They don’t have to race. It totally changes the incentive structure.”
“The key was to get people to agree, that alignment piece. That’s 90% of my work.”
But to make this idea work, he had to get the five fishing companies together. Which he did one day, gathering all of them in one room. And in an afternoon, he succeeded in getting them to agree to how they were going to allocate their fish stocks. Peter said of this personal feat: “Here’s a great process innovation, which has had tremendous economic impact…the key was to get people to agree, that alignment piece. That’s 90% of my work.”
Don’t Miss the Internet
As well as hearing personal stories of success in innovation, I also love to hear stories about what didn’t work. With Peter’s background in Canadian telecom (he used to work for the holding company that owned Nortel), he shared his perspective on the time in the 1990s when the telecom companies were transitioning to the internet as the main form of communication. As Peter explained, all of the leading global telecom companies “failed to make the transition to the internet protocol form of communication. How did this happen? It wasn’t because these companies didn’t know, didn’t understand the technology.”
Instead, Peter cites that the reason these companies missed the boat was because they didn’t want to disrupt their major customers: “Their big customers, the people that were supplying the quarterly financial results, were the old wireline companies and… the major customers did not want this disruptive technology…it was really going to vaporize their business model but, of course, it was going to happen anyway.” One of the lessons here, from someone who was there as it was unfolding, is to not to worry so much about cannibalizing or disrupting your current business that you miss the much bigger opportunity.