US innovation is booming---work accelerates breakthroughs.

Despite the upheaval caused by the COVID-19 pandemic—and partly because of it—innovation and digitization have been happening at a record-breaking pace. A McKinsey survey of top executives around the world found that companies accelerated their digitization of customer, supply chain, and internal operations by an average of three years.

Indeed, over the past two years, countries around the world have set records for new business formation, new patents issued, venture capital invested, and more. The US Census Bureau’s seasonally adjusted business formation statistics data show that through 2021, a record 5.38 million applications had been filed to form new businesses—an increase of more than 50 percent over prepandemic 2019.1 The brisk pace meant there were roughly 409,000 more US filings in 2021 than at the same point in prepandemic 2019. The World Intellectual Property Indicators also showed that aggregate global filing activity across 150 authorities grew in 2020, even amid the global health crisis.2 Venture capital flows have also boomed: in 2021, global venture capital more than doubled from 2020, rising 111 percent.3

What’s striking about these dramatic advances is that they largely entailed people collaborating remotely, leveraging technology in different ways, and being bolder with innovation, automation, and digitization than ever before. For decades, physical proximity has been considered essential to successful innovation. In an influential 1977 book, management professor Thomas Allen described a strong negative correlation between physical distance and frequency of communication, finding that people are four times as likely to regularly talk with someone six feet away from them as with someone 60 feet away, and people almost never communicate with colleagues on separate floors or in separate buildings.4

This proximity mantra guided everything from office layouts to urban planning. Cities such as Boston (with many counterparts around the world) have tried to fuel innovation by establishing districts where academia, research organizations, start-ups, and investors work side by side in purpose-designed “innovation ecosystems.”5 Locating problem solvers together to encourage creative collisions of ideas, experimentation, and informal collaboration is also core to one of McKinsey’s original eight essentials of innovation.

While the pandemic-related measures have thwarted the engineered serendipity designed into physical work spaces, making watercooler conversations and impromptu problem-solving interactions difficult to replicate virtually, it has led to a broad embrace of videoconferencing and virtual collaboration tools. Organizational network and collaboration analytics have also enabled innovative companies to help employees build and sustain the ties necessary to generate new ideas. As a result, organizations have, in the words of author Steven Johnson, “widened the pool of minds that could come up with and share good ideas”6—a vital ingredient for innovation. By connecting people into broader virtual networks, the pandemic has increased the collective speed and creativity of innovation efforts.

It’s likely that flexible work and workplaces are here to stay, especially for organizations seeking to maintain or accelerate this elevated pace of innovation. More than half of corporate and government employees say they would like to work from home at least three days per week, and the number is even higher for innovation talent, such as programmers.7 Location flexibility has become a de facto expectation for the latter group. Rather than seeing this as an obstacle, organizations seeking to innovate are doubling down on the benefits that new approaches to innovation present.