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IT Business EdgeIn the first part of this interview with John Hagel, co-chairman of Deloitte's Center for the Edge, he told Ann All that on an economy-wide level, U.S. companies’ return-on-assets (ROA) has plummeted 75 percent since 1965, despite major improvement in labor productivity over the last four decades. Here, he offers suggestions on how companies can turn this trend around by focusing on institutional innovation, rather than product and technology innovation.

All: So with it becoming so much harder to benefit from simple cost reduction, it would seem companies need to focus more on innovation. But Deloitte found that innovation doesn’t seem to improve ROA either. Is this because innovation that occurs spontaneously is outpacing what we see within most companies?

Hagel: My sense is a lot of it has to do with how we define innovation. Most executives, when you talk about innovation, immediately default to product innovation or technology innovation. Maybe they’ll talk about process innovation. The problem with all of that is, the average lifetime of a product is compressing dramatically. If we come up with an innovative new product, it has a shorter and shorter shelf life. We think the real opportunity is to shift the focus of innovation to what we’d call institutional innovation.

Deloitte: Old-School Innovation No Longer Cuts It | Interviews |