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July 16, 2002) - You know it's coming. The wave of innovation introduced by Monster and others in the mid 1990s will inevitably be followed by another wave of change. The question, of course, is what is it and how will it manifest itself?

In the interim, we all get the opportunity to change sides on the ever swinging pendulum of insourcing versus outhousing. Rather than an innovation, this is a modest episode in the ongoing "Who moved the cheese?" soap opera. Fairly obviously, outsourcing is a short term trend that will have the effect of eliminating obstructionist management before the outsourcers realize that Human Capital Management is "the" critical function and skill of all successful organizations. To prolong the short digression, while the outsourcing idea may well make sense for aged companies in need of milking as cash cows, you can be certain that outsourcing HCM is the same as admitting to an inability to innovate.

Back to the original question....where will the next wave of change come from?

There are only two sources for industry wide innovation: technical entrepreneurs faced with a moment of market dislocation (like we saw with the advent of the web) or companies with focused investments in pure Research and Development. Lately, we've been noticing a flurry of activity in the formation of small businesses again. Perhaps one of them will be the next big winner. We are going to bet, this time, that industry leaders will recognize the importance of R&D and that the next wave will come from an already known player. You can be sure that fast growth companies are unlikely to produce it.

A bit of clarity is in order. There are two sorts of R&D: Applied (product improvements) and pure (experimentation in general areas in the hopes of discovering an innovation). Everyone in the business is in the process of developing higher levels of customer sensitivity. Recessions do that. Loyal customers are the essence of survival. A stream of product improvements is not an R&D program in any way that will take the industry to its next level.

A long time ago, Peoplesoft used to have R&D programs.

The investment in pure R&D (the stuff the tax deductions are really supposed to be about) has been long been missing from our world. Far too many cash hungry businesses have found the investment optional and can not now understand why their growth is stymied. It's why the staffing industry is always the first to consume new ideas but never the one to invent them. We expect to see some relatively interesting efforts on the parts of mid-level players to convert their market positions intop dominant ones by funding real R&D.

 -John Sumser

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