What is the formula for innovation, and more important, how do we sustain it? It comes down to being good in three dimensions: technology, human capital, and capital investment.
Technology: Most discussions about innovation focus on technology. It is always the “latest and greatest” gadget and Moore’s Law—the pace of change, disruption, those kinds of things. And I think that is all exactly right. But I do see it a little differently. When I think about technology, I think about a third-base coach in baseball. Show me a baseball team where every runner is safe at home, and I will show you a team that is not scoring as many runs as it could. Third-base coaches have to make split-second decisions about whether to send runners home or not. They have to make that judgment—based on a number of variables—and then the runner is either safe or out.
In baseball, the third-base coach gets better at his job every time he sends a runner home—regardless of the outcome. But think about what we do in business if a runner is out. By process, we will gravitate to the lowest common denominator to make sure we do not ever send another runner home who will be out, right? By doing this we lost the opportunity to train our third-base coach.
We have got to have people thrown out at home, and we must celebrate those constructive failures. You have to promote people who have failures, right?
Human Capital: I heard Secretary of the Navy Ray Mabus talk about human capital a few years ago. He said something like the following: If you look at the population of the United States between the ages of 18 and 24, and you take out the folks who do not have high-school diplomas, the ones who have criminal records, and the ones who are not physically fit, you are left with about a quarter of the population. That 25 percent is carrying the other 75 percent.
Think about that for a minute. If you walk into a fifth-grade classroom today, only one in four kids will grow up to be the kind of person we want to hire. The other three are going to be folks who somehow we are going to have to carry.
I believe the problem starts in pre-K. In the United States, only 66 percent of our four-year-olds go to preschool; the average for Organisation for Economic Co-operation and Development (OECD) countries is 84 percent. The percentages are even lower for three-year-olds: 38 percent in the United States, compared to 64 percent for all OECD countries. The paradox is that we rank fifth in the world in terms of educational investment, but we are tied for 28th in performance.
So our real challenge is our education system. We can talk about innovation all we want, but if we do not fix this problem, 25 years from now we are not going to have the workforce pipeline we need. This is a national-security issue.
At Huntington Ingalls Industries, we spend a lot of money on training and workforce development, but we are also investing in the front end of that pipeline: early education. A lot of businesses sit at the end of the pipeline and are unhappy with the product, but they are not invested in it. Our experience demonstrates positive returns on investments in the workforce-development pipeline.
Capital Investment: In business, we think in terms of investment and return: What do we need to invest in a project to make it work? What is the time frame of the investment? How long does it take to play out? What is the return we can expect? And it is not just quantitative: What is the qualitative return? At HII, we have a very long view, and we have been successful because of it.
On the other hand, our public process—the government’s budget process—is not an investment-and-return process; it is a budget-and-expense process. This requires you to check and see how you are spending your money against your budget. If you spend a little bit more than the budget, the overall perception is that you failed, right?
Think about that from the perspective of the third-base coach. For him to be able to learn something from having a runner safe or out at home is a return on the investment of sending that runner home. But out equals a failure, and that is a mistake. That saws at the bones of whether we can have long-term, healthy, sustainable innovation.
Conclusion: We have great technology, but are we allowing ourselves to fail? We are doing a lot to train people at the end of the talent pipeline, but we should be doing more at the beginning to get it right. We need to ask: How can we better align industry’s investment-and-return criteria with the government’s budget-and-expense process—and will taxpayers accept the risk?
Mr. Petters is president and CEO of Huntington Ingalls Industries, America’s largest military shipbuilding company and a provider of manufacturing, engineering, and management services to the nuclear energy, oil, and gas markets.