Irving Wladawsky-Berger

Smart Cities as Systems of Systems

I was recently in Berlin to attend a conference on Smart Cities sponsored by IBM.  This conference is part of a global dialogue on the growth of cities and urbanization in general that IBM launched a few months ago as part of its overall Smarter Planet initiative.

“Why cities?”, asked IBM’s chairman and CEO Sam Palmisano when he kicked off the Smarter Cities dialogue at the end of April.  He then proceeded to articulate the two key reasons for focusing on cities, one centered on people, the other on technology and systems.

“Well, to state the obvious - that's where the people are.  By 2050, 70 percent of people on Earth will live in cities.  Which means that cities ... more than states, provinces or perhaps even nations ... are increasingly the central arena for success or failure.”

“And a city is a system - indeed, a city is a complex system of systems.  All the ways in which the world works - from transportation, to energy, to healthcare, to commerce, to education, to security, to food and water and beyond - come together in our cities.”

The Decline, Fall, and (Hopefully) Reinvention of a Giant

I often start my seminars on business transformation by discussing why innovation is not an option, but rather an imperative for any company, -  no matter how big, powerful and successful.  Failure to innovate will invariably get a company into serious trouble, perhaps even impacting its ability to survive into the future, especially in times of rapid change and fierce competition.  To bring the innovation imperative to life with a concrete example, I use the IBM near-death experience that I lived through in the early 1990s.

I illustrate IBM’s rapid decline by first showing a Fortune cover  from 1985 about America’s most admired corporation based on Fortune’s yearly survey of company reputations.  IBM was then at the very top.  But, by the early 1990s, the picture had drastically changed.  This is graphically shown in a Fortune cover and article from May 3, 1993: “Dinosaurs? They were a trio of the biggest, most fearsome companies on earth. Here's how earnest executives managed them into historic decline.”  The hapless dinosaurs were IBM, Sears and . . . General Motors.

I was reminded of this 1993 article when reading about GM’s declaration of bankruptcy on June 1.  Luckily for IBM, after hitting bottom the company took the necessary actions and was able to successfully reinvent itself.  Not only was IBM able to survive, but it once more attained a leadership position in the IT industry.  The experience was very painful, even humiliating for those of us who went through it.  But at least it was relatively short and was followed a few years later by a very sweet redemption, including this 1999 Fortune article IBM: From Big Blue Dinosaur To E-Business Animal.

The 2009 MIT Sloan CIO Symposium

Last week I participated in the MIT Sloan CIO Symposium.  The CIO Symposium is an annual one-day conference on the MIT campus, now in its sixth year, “where CIOs and other senior business executives from around the world gather to explore how leading-edge academic research and innovative technologies can help address the challenges faced in today’s changing economy.”  The theme of this year's Symposium was Sustaining CIO Leadership in a Changing Economy. 

The MIT Symposium consisted mostly of interactive panel discussions, including broad audience participation.  Two key themes kept recurring throughout all the panels and discussions.  One was cloud computing, the other was the evolving role of the CIO. 

As is typically the case, panelists used somewhat different definitions of cloud computing, as they each talked about clouds from his/her own point of view.  This is what you would expect if you agree with the view that cloud computing refers not to any one product or service, but to an emerging model of computing beyond the centralized and client-server models of past decades.

The Mass Customization of Services

A recurring theme in the world of technology over the past few decades has been the potential convergence of the IT and telecommunication industries. 

This all started in the 1980s, when the telecommunications industry began to seriously transition from analog to digital technologies in all their voice equipment, from central office and private switches to the phones themselves.  Given that these digital telecommunications products were essentially special purpose computers, many thought that it would not be long before the telcos would develop versions of their products for the general computer markets, and IT companies would adapt their general purpose computers for the more specialized telecommunication applications.

In the early 1980s, everyone was geared for the marketplace battles between these two industries, and in particular, for the battle of the titans between the original American Telephone & Telegraph and IBM, the undisputed leaders in their respective industries.  Both were planning major market expansions after no longer having to worry about being shackled by the US government, since in 1982, the Justice department settled the major antitrust suit it had brought against ATT, and dropped its antitrust suit altogether against IBM.

Smart Cities and "Liveability"

In the last week of April, I participated in a workshop on Smart Cities at Imperial College.  The workshop was organized by the Innovation and Entrepreneurship Group of the Imperial College Business School, as part of a new multi-disciplinary research initiative, Ecocit, whose goal is to study how to help urban environments around the world thrive both ecologically and economically.

The study of cities has become a very important topic.  The workshop invitation writes that:  “The infrastructure of future cities needs to support vibrant, innovative and entrepreneurial communities that take advantage of the digital environment and realize their potential to become ‘smarter’.  However, resource constraints, the effects of climate change and growing population with migration to urban areas will all have an effect on the cities of the future and the infrastructure that will provide for communities’ needs.”

Over the last year, we have started to apply the term smart to our ability to infuse intelligence into the very way the world’s systems and processes work.  What makes this now possible is that just about anything we care about can be sensed and measured - any person, any object, any process or any service, can become digitally aware and networked.  We can then make all these various people, things, processes and services much more intelligent by turning the mountains of information we gather from the instrumented components and their interactions into real insights using sophisticated analysis and powerful supercomputers.

The Intelligent Enterprise

What do we mean by intelligent enterprise?  Wikipedia defines human intelligence as “ . . . an umbrella term used to describe a property of the mind that encompasses many related abilities, such as the capacities to reason, to plan, to solve problems, to think abstractly, to comprehend ideas, to use language, and to learn.” 

Another major use of intelligence relates to information gathering and analysis.  This is the kind of intelligence practiced by government agencies, like the CIA and NSA in the US; the Secret Intelligence Service in the UK, better known as MI6 and perhaps most famous as the home of Secret Agent 007; and the KGB of the former Soviet Union.

Information-based intelligence has become increasingly important to enterprises and other organizations over the past couple of decades.  The use of business and market intelligence has gone way up in recent years, as the Internet and World Wide Web have unleashed a torrent of information, which increasingly powerful computers can analyze and thus help companies better understand what is going on out there.

Cloud - the Emergence of a New Model of Computing

The buzz and excitement around cloud computing has been steadily building over the last year.  There is general agreement that something big and profound is going on out there, although we may not be totally sure what it is yet.  "There is a clear consensus that there is no real consensus on what cloud computing is," was one of the key conclusions at a recent conference on the subject. 

I believe that one of the major reasons for both the excitement and lack of consensus is that we are basically seeing the emergence of a new model of computing in the IT world.  For the IT industry, a new computing model is a very big deal.  In the fifty years or so since there as been an IT industry, this would be only the third such model, centralized and client-server computing being the two previous ones.

What characterizes a computing model?  There is no single dimension around which to define a computing model, which I believe accounts for the variety of definitions of cloud computing.  It’s like the fable of the blind men and the elephant.  Each one touches a different part of the elephant.  They then compare notes on what they felt, and learn that they are in complete disagreement.

The Entrepreneurial Society

The March 14th issue of The Economist included a special report on entrepreneurship.  The special report defines entrepreneurship as something that applies not only to new or small companies.  It uses the word in a more focused, narrower sense “to mean somebody who offers an innovative solution to a (frequently unrecognised) problem.  The defining characteristic of entrepreneurship, then, is not the size of the company but the act of innovation.”

There is so much talk out there about entrepreneurship and innovation that it is easy to forget that it is only recently, perhaps in the last decade or so, that entrepreneurialism has become cool, primarily driven by the profound technological changes all around us.  This is not only true in the US, which still leads the world in innovative new start-up companies, but in countries around the world, from giant India and China which are creating millions of new entrepreneurs, to small countries like Israel, Denmark and Singapore, each of which thrives in its own way.

I am particularly intrigued by the special report’s overall conclusion:  “The rise of the entrepreneur, which has been gathering speed over the past 30 years, is not just about economics. It also reflects profound changes in attitudes to everything from individual careers to the social contract. It signals the birth of an entrepreneurial society.”

Design, Innovation and Organizational Systems

I was back at Imperial College in London in the last week of February.  I gave several seminars and held a number of meetings, but the main reason for my visit was to once more participate in a STIR lecture sponsored by Design London. 

Design London is an initiative launched about two years ago between Imperial College and the Royal College of Art.  It aims to bring together the disciplines of design, engineering, technology and business to address jointly the challenges of innovation in an increasingly global, competitive economy.  As part of its many research and educational activities, Design London offers the STIR (Simulator, Teach, Incubate, Research) lectures, which cover a wide range of subjects from widely different personal experiences and points of view.

Our STIR lecture - CROSS OVER:  how a new approach to architecture is inspiring a new architecture for business - aimed to “explore not only how a radical approach to design has inspired a new genre in the built environment, but also how this approach can be applied to designing a new architecture for business.”

Services, Jobs and Related Subjects

The services sector is by far the largest in the world’s economy.  Services comprise 64 percent of GDP overall, about twice as large as the GDP of the industrial sector.  The services sector represents over 70 percent of GDP in advanced economies and close to 80 percent in the US. 

Jobs exhibit similar statistics.  According to the 2008 World Factbook, about 40 percent of all the jobs in the planet are in services.  The numbers go up significantly in the more advanced economies.  About two thirds of the jobs in Brazil, Japan and the European Union are in services.  In the US, UK and Israel the percentage of such jobs is around 80 percent.  

It is interesting that while constituting such a large portion of GDP and jobs in the world, the nature of services remains vague - a kind of hard-to-measure dark matter.  It is easier to define the services sector by what it does not include:  it is not agriculture or fishing, and it is not manufacturing, construction or mining.  Just about every other job is in services.  Perhaps the one definition everyone can agree to is one attributed to The Economist: a service is “anything sold in trade that cannot be dropped on your foot.”

The Industrialization of Services

In the late 18th century, the Industrial Revolution started the transition from a manual-labor based economy towards an economy based on using technologies, tools and machines to significantly improve the manufacturing of physical goods.  Over the next two hundred years we have seen the industrial sector of the economy achieve major improvements in the productivity and quality of manufacturing, ranging from very simple to highly complex physical objects.

A major step in that remarkable story of innovation occurred around thirty years ago.  Before that time, most manufacturing plants were fairly inefficient by almost any contemporary measure, and were turning out products of varying quality.  Then, driven by the huge success of Toyota and other companies around the world, the industrial sector and academia discovered the merits of applying engineering discipline as well as a holistic, systems-wide approach to manufacturing processes.  Company after company embraced the Toyota Way, Six Sigma, Lean Production and similar methods in their manufacturing and logistics operations, which have brought the industrial sector of the economy to a whole new level of productivity and quality.

The rise of IT in the last several decades has enabled us to start applying technologies to the large and diverse world of services.  In the beginning, computers were used primarily to perform calculations.  In the 1970s, we started to make a lot of progress automating highly repetitive, back office tasks like processing financial transactions, inventory management and airline reservations.  Then, a decade later, the personal computer enabled us to develop all kinds of productivity applications like word processing and spreadsheets.  The 1990s brought us the Internet and World Wide Web, which introduced revolutionary ways of dealing with content, communications and commerce.

Transparency and Open Government

One of the first documents our new President signed within his first day in office is this memorandum on Transparency and Open Government.  It is a memo that I am personally very happy to see, not only because I agree so strongly with its content.  For the last couple of months I have been a member of the Technology, Innovation & Government Reform (TIGR) transition policy group focusing on innovation and government.  This Presidential memo covers precisely the area that we worked on.

The TIGR Group

Right after winning the November 4 election, President-elect Obama's transition team established a series of Policy Working Groups "to develop the priority policy proposals and plans from the Obama Campaign for action during the Obama-Biden Administration."  There were seven such Groups: Economy, Education, Energy & Environment, Health Care, Immigration, National Security, and Technology, Innovation & Government Reform.

The TIGR group that I was part of was charged with developing "a range of proposals to create a 21st century government that is more open and effective; leverages technology to grow the economy, create jobs, and solve our country’s most pressing problems; respects the integrity of and renews our commitment to science; and catalyzes active citizenship and partnerships in shared governance with civil society institutions."  We were organized into four sub-teams: Innovation and Government, Innovation and National Priorities, Innovation and Science, and Innovation and Civil Society.  I was part of  the Innovation and Government group.

Leadership in a Time of Crisis

Leadership is the kind of subject that invariably rises to the top in a time of crisis.  Otherwise, it is one of those topics that companies talk a lot about but otherwise don't feel the need to pay much serious attention to.  When skies are blue, the business can usually cruise along quite nicely with executives who are likely top operational managers but may or may not also have good leadership attributes.

Think about how executives typically reach senior management positions?  The key responsibilities of middle management are to deliver against their operational and functional commitments.  Those who perform well in their jobs will generally be promoted to positions of higher responsibility.  The selection process will ensure that they have very good operational skills and have experience in managing different kinds of functions in the organization - finance, sales, customer service, HR, manufacturing, logistics - or all of them in the case of good general managers.

Managing a large global organization is very tough and getting tougher given our unpredictable, fast changing, intensely competitive market environment.  Being a successful manager in such an environment is truly difficult:  you have to constantly improve your products and services to keep up with fast changing technologies and markets; you have to work hard to retain existing customers and attract new ones regardless of how ferocious the competition is; and you must achieve good financial results quarter after quarter, lest  you disappoint shareholders and financial analysts, who will then start asking for your head. 

But, in highly disruptive times, let alone in a time of crisis, being an excellent manager is not enough.  Presumably the company is in crisis because the new disruptive environment is so different from everything that came before.  The tried-and-true management disciplines are no longer working.  Something else, over and above excellent management is required, namely leadership.

Managing across Borders and Cultures

I was recently invited to join The Levin Institute as a Senior Fellow.  The Levin Institute is a new, independent institute within the State University of New York (SUNY).  It was established to train students, working professionals and organizations to live and work effectively in our emerging global environment.  Its mission is succinctly captured in its tag line: Managing across borders and cultures.

The Levin Institute is located in a newly renovated landmark townhouse on 55th Street between Park and Lexington, in the heart of New York City.  Its full name is The Neil D. Levin Graduate Institute of International Relations and Commerce.  It was founded by the State of New York to honor the memory of Neil David Levin, a former Executive Director of the Port Authority of New York and New Jersey who was killed during the September 11 terrorist attacks on the World Trade Center. 

The Levin Institute is led by Garrick Utley, a former broadcast journalist with extensive experience in international affairs, who reported from more than 75 countries for more than 40 years.  Mr. Utley’s Presidential message describes its missions thus:  

"We are a new 21st Century academic model and enterprise that addresses key aspects and issues of globalization. We do this through developing new learning models, research and public engagement.  We prepare individuals and institutions to learn, work and communicate across borders and cultures.  As a free standing, system wide institute within the State University of New York (SUNY) we meld management school curricula with those of schools of international relations.  The successful manager of the 21st Century will be defined by the ability to operate successfully across divisions of nationality, ethnicity, religion and languages as well as political, economic, legal and regulatory environments.

“Our research projects and studies include global talent (high end knowledge workers), China as an emerging, knowledge-driven economy and society, the growing influence of global corporations, global media and the impact of globalization on American society.  Through our conferences and events, and leading-edge information and audio visual technology, we work to give new meaning to the concept of distance learning. One of our web sites, www.globalization101.org, is a leading platform for information and learning tools."

"Serious" Virtual Worlds Applications

Given my strong belief in the promise of virtual worlds applications, I follow closely their ups and downs in the maretkplace.  Virtual worlds continue to be most popular in video games, massively multiplayer online environments and other consumer oriented applications.  The number of applications in serious areas like education, business, government and health care remains small.  So it is particularly exciting when we see working examples of serious virtual worlds applications, because, more than the words any of us can write, they nicely illustrate their potential.  Let me highlight a couple of recent such applications. 

The IBM Academy of Technology comprises the most accomplished technical leaders from around the world who work across the spectrum of IBM's technical activities.  Established in 1989, its key mission is to identify and pursue technical issues affecting the future of the IT industry, especially those that are highly relevant to IBM's overall business and technical strategy.  There are currently about 350 Academy members.  In addition, there is an extensive global network of regional Academy Affiliate, whose membership includes the key technical leaders in each region.   

The IBM Academy is a self-governing entity that elects its own members and officers.  Its independence gives it very broad latitude in deciding what activities to pursue and what recommendations to make to IBM's senior management.  For many years I was a member of the Academy's Board of Governors, and its Chairman from October 2004 until my retirement in 2007.

Every Fall, the Academy hosts a three-day general meeting to help promote communications and a sense of community among its members, as well as to develop and debate new ideas.  Due to the deteriorating economic conditions caused by the global financial crisis all around us, the decision was made in early October to cancel the 2008 general meeting, scheduled to take place a few weeks later, and to replace it with some alternative virtual meeting that would require no travel.

As it turned out, since October of 2007, a small team of Academy members and other experts had been working to develop a virtual world platform for use in Academy meetings.  Besides its large annual general meeting, the Academy holds many smaller meetings throughout the year as part of its various studies.  Since participants in these studies come from all over the world, travel is always an issue, not just because of the expenses, but also the travel time and general wear and tear involved.

Living in a Smarter Planet

Just about everyone agrees that we are living in an increasingly global, integrated, complex . . . and unpredictable world. What can you do about it? The only possible answer is to take the same information technologies that are making our planet so much smaller and flatter, and use them to make our planet smarter - all its processes, systems, institutions, economies and nations.

Last week, IBM Chairman and CEO Sam Palmisano addressed this topic at the Council of Foreign Relations in New York City, in a talk titled A Smarter Planet: The Next Leadership Agenda. Sam explained that when he talks about making the planet smarter, "This isn't just a metaphor. I mean infusing intelligence into the way the world literally works - the systems and processes that enable physical goods to be developed, manufactured, bought and sold… services to be delivered… everything from people and money to oil, water and electrons to move… and billions of people to work and live."

What makes it now possible to talk seriously about making the planet smarter? Sam mentioned three key factors. First, just about everything can now be instrumented - anything we care about can be measured, sensed and seen. We can now embed sensors in physical things, like cars, appliances, medical equipment, cameras, roadways, pipelines, pharmaceuticals or livestock. We can measure entire ecosystems - whole supply chains, business processes, cities, healthcare networks, even natural systems like forests and rivers. We will be able to gather huge amounts of real-time information about the state of the world.

Next, our world is becoming increasingly interconnected. These instrumented things can now interact with each other, much as they do in the physical world. Our instrumented processes can exchange information with each other so that together they can improve the operations of the larger systems of which they are parts. It is important that we break down the silos and begin to look at the world in a more holistic way, as an interconnected system where the various components collaborate with each other, so that together they get the job done.

Finally, all these various things and processes can be made much more intelligent by using the information we gather from all those instrumented components as well as from their interactions. Turning these mountains of information into real insights to guide our actions requires sophisticated analysis using powerful supercomputers. We can also use these powerful supercomputers to optimize the individual components, as well as the overall system. This kind of information-based intelligence will help us make companies, industries, organizations and economies more efficient, productive and responsive.

Cloud Computing: the Internet of Services

The October 25 issue of The Economist includes a special report on cloud computing - seven articles plus an introduction.  It is an in-depth look at this new model of computing, its implications, its value promise to companies and societies, as well as the pitfalls against which we have to guard.

In the lead article, Ludwig Siegele starts out his definition of cloud computing by first giving a very succinct history of computing:

"In the beginning computers were human. Then they took the shape of metal boxes, filling entire rooms before becoming ever smaller and more widespread.  Now they are evaporating altogether and becoming accessible from anywhere."

"That is about as brief a history of computers as anyone can make it.  The point is that they are much more than devices in a box or in a data centre.  Computing has constantly changed shape and location - mainly as a result of new technology, but often also because of shifts in demand."

He then goes on to define cloud computing:

"Now, this special report will argue, computing is taking on yet another new shape.  It is becoming more centralised again as some of the activity moves into data centres.  But more importantly, it is turning into what has come to be called a 'cloud', or collections of clouds.  Computing power will become more and more disembodied and will be consumed where and when it is needed."

"The rise of the cloud is more than just another platform shift that gets geeks excited.  It will undoubtedly transform the information technology (IT) industry, but it will also profoundly change the way people work and companies operate.  It will allow digital technology to penetrate every nook and cranny of the economy and of society, creating some tricky political problems along the way."

Towards an ET (Energy Technologies) Revolution

Our world is not lacking for Grand Challenges - that is, complex problems of great importance to society whose solutions require breakthroughs across multiple dimensions.  I am sure that improving the productivity and quality of health care is in just about everyone's list.  The effective management of our global, integrated, unpredictable economies and financial systems is probably going to be a newcomer to many Grand Challenge lists.  But, most experts will likely agree that the search for clean, plentiful energy is the single biggest problem facing humanity and will be at the very top of Grand Challenge lists for the foreseeable future. 

Why are breakthroughs in energy so critical?  First of all, we face major challenges in finding reliable supplies of energy, and reducing the environmental impact of energy production and use.  But, energy is also directly linked to some of the toughest problems we face in the 21st century, such as water, food, poverty, transportation, terrorism and war.  Energy likewise plays the dominant role in determining the quality of our environment.  It is a key factor in the quality of life for people around the world, arguably the single most important factor that impacts the prosperity of any society.

Tom Friedman, whose best-seller The World is Flat helped explain the forces of globalization to millions around the world, recently published Hot, Flat and Crowded: Why We Need a Green Revolution - and How it Can Renew America.  In his new book, as well as in his articles and Op Ed columns, Tom has been vigorously talking about the power of green, the incredible economic opportunities available to those working towards an ET - Energy Technology - revolution, a revolution every bit as transformative and disruptive as the IT revolution has been.

An Update on Virtual Worlds

For the last three years I have been quite intrigued by virtual worlds and all the various capabilities we group under this term.  I believe they are ushering a new paradigm for user interfaces, as well as a whole round of innovative, more human-oriented, intuitive applications.

While many are excited by these possibilities, others remain skeptical.  Virtual worlds continue to be most popular in video games and massively multiplayer online environments.  Despite our high expectations, the number of virtual world applications in serious areas like education, business, and health care remains small.  Some think that this is just one more example of the kind of hype that the IT industry comes up with from time to time.

At this early stage, both fans and skeptics are right.  The promise is there, but it remains to be realized.  I, most definitely, remain positive.  Let me attempt to explain why. 

To begin with, what do we mean by serious virtual world applications?  While there will undoubtedly be many different such applications, I’d like to focus my comment on three specific categories.

Complex Organizational Systems

The study of complex systems has been a common arc in my career.  It started with physics at the University of Chicago in the 1960s, where I was studying complex natural systems - atomic and molecular physics in particular.  Later on, when I joined IBM Research and became a computer scientist, my main research interests were centered on large computer systems, including mainframes, supercomputers and distributed systems.  In the last twelve years, my work has focused on the kinds of complex systems made possible by the advent of the Internet and the Web.  Then, in the last five years, my interests have gravitated toward market-facing complex systems involving people and services.

What makes such complex systems complex?  I found the most satisfying answer to this seemingly Socratic question in an excellent paper - Complexity and Robustness - by  professors Jean Carlson and John Doyle from UC Santa Barbara and Cal Tech, respectively.

Complex systems, whether natural or engineered, are composed of many parts.  But it is not the mere number of component parts that makes them complex.  After all, a stone or a table is composed of huge numbers of molecules, yet we would not consider them complex.  According to Carlson and Doyle, a truly complex system must consist of many different kinds of parts, intricate organizations and highly different structures at different levels of scale.  Humans, bacteria, advanced microprocessors, modern airplanes, global enterprises, urban environments, national economies and healthcare delivery are all examples of complex systems exhibiting these massive, heterogeneous, intricate characteristics.

A High Wire Act with the Whole World Watching

Like so many around the world, I was transfixed by the spectacular opening ceremonies of the 2008 Beijing Olympics.  From everything I had read I was expecting a grand spectacle - two years in the making, at a cost of a few hundred million dollars, with more than 15,000 performers.   In particular, I was really curious to see what Zhang Yimou, the overall director of the opening ceremonies, would come up with.

Zhang Yimou is one of my favorite film directors.  I first discovered his work about ten years ago.  He is part of what is known as the Fifth Generation of Chinese filmmakers, the name given to the first group that graduated from Beijing's film making school in the 1980s after the devastating Cultural Revolution.

His films are visually stunning.  Hero, for example, is one of the most gorgeous films of all time.  He is also a great storyteller, whether directing a historical epic like To Live or small, intimate films like The Road Home. 

I was eagerly looking forward to Zhang Yimou’s opening ceremonies, and he surpassed all my already high expectations.  It was truly fascinating.  It was also an incredible high wire act to put on in front of the whole world.

Indifference, Hostility, Isolation and Other Obstacles to a Healthy Innovation Environment

In most companies, just about all the cards are stacked against the nurturing of innovation, especially the kinds of new ideas and disruptive innovations that generally lead to major changes in the marketplace and within the business. 

Is that too pessimistic a view?  Perhaps.  Let me discuss some of the behaviors I have observed through the years in various companies, which have convinced me how difficult it is to create the proper environment for innovation to flourish.

Atoms, Bits and the e-word

Every two years, leaders of the computer sciences community from universities and research labs come together in Snowbird, a ski and summer resort in Utah, for what has become known as the Snowbird conference.  This year, I was invited to speak in the opening session.  So, a few weeks ago, I got up very early on a Sunday morning and flew to Salt Lake City.  I got there early enough to be able to go hiking with friends in the beautiful Snowbird mountains.  I also tried rock climbing in a nostalgic, age-defying encounter with a climbing wall -  something I have not done in close to forty years.

The following morning I gave my talk on Innovation in the Knowledge Economy.  The theme of the talk was the evolution of IT-based systems to the incredibly complex systems we are dealing with today.

In the first part of the talk, I summarized the challenges.  Driven by the advances in digital technologies, the Internet, globalization and other powerful technology and market forces, IT-based systems are becoming increasingly global and integrated; market facing and services oriented; and complex and unpredictable. 

I then talked about three major initiatives that I am working on with colleagues at IBM, which illustrate this evolution toward complex IT-based systems: cloud computing; globally integrated business systems; and virtual worlds.

The third theme of my talk was, in my opinion, the most important for the audience at the Snowbird conference.  Dealing with these incredibly complex systems requires highly-skilled people.  There is no doubt that the value of a good education is more important than ever, given all the changes going on around us.  But, to help prepare graduates to be innovation leaders in the complex world in which they will be living and working, the education needs to reflect the realities of that world.

What is Cloud Computing, Anyway?

In a recent blog I summarized the discussions around cloud computing at the conference I had just attended by writing that "something big and profound seems to be going on, although we are not totally sure what it is yet." 

Cloud computing is the kind of wide-ranging initiative that different people can look at from their own point of view and come up with their own, somewhat different definitions.  This is not surprising in the early stages of such a comprehensive initiative.  When the Internet first broke into the wider world in the mid 1990s, you similarly heard lots of different opinions on what it was and what it would be good for.

In reading through the assorted cloud definitions, five key themes keep coming up.  Let me say a few words about each of them.

Innovation and Evolutionary Biology

Innovation, like falling in love, requires a certain state of mind.  As I write this, I am well aware how incredibly nerdy I likely come across.  I am not about to suggest a whole rash of poems, novels and films celebrating innovation.  But please, bear with me.

A lot of work has been done in the last decade by well respected scientists, like Helen Fisher, on how our brains behave when we are falling in love.  Sophisticated functional MRI (fMRI) machines have demonstrated that being madly in love is actually a reasonably good description of the state of our brain when so infatuated.  If we have ever felt bewitched, bothered and bewildered when falling in love, it is because we literally were.

I don't need to spend much time discussing how this came to be from an evolutionary biology point of view.  Something like falling in love plays a very important evolutionary role in birds, bees, baboons - and humans.

How about innovation and creativity? Are there states of mind, measurable by fMRI and similar scientific tools, which strongly indicate that individuals and groups are solving complex problems and coming up with great new ideas?  Are there work and learning environments that are particularly conducive to help people achieve such states of mind?  Is there anything that companies, schools and other institutions that have a huge stake in being innovative can do to foster such work and learning environments in their midst?

The answer to all these questions is clearly yes.

The Promise and Reality of Cloud Computing

Cloud Computing continues to be a very hot subject.  At the end of June, I participated in a conference in Cambridge on The Promise and Reality of Cloud Computing, sponsored by Xconomy - a communications company whose tag line is Business + Technology in the Exponential Economy. 

The sense of the meeting was succintly captured by Bob Buderi, founder and CEO of XConomy: "There is a clear consensus that there is no real consensus on what cloud computing is,"  following his earlier summary:   

"Our speakers put cloud computing in its historical context - from the Cambrian explosion all the way through the rise of electric utilities.  They showed how businesses today can use this emerging technology for cost-effective and powerful computing solutions. And they also gave us a feel for the real paradigm shift the cloud could bring to the computing world, especially how large software companies might find themselves vulnerable to disruption (although some firms are still in denial about this)."

In other words, something big and profound seems to be going on, although we are not totally sure what it is yet.

Knowledge Capital

A couple of weeks ago I participated in a conference at the National Academies on Intangible Assets: Measuring and Enhancing Their Contribution to Corporate Value and Economic Growth.  The conference was sponsored by the Board on Science, Technology and Economy Policy (STEP).   

What are intangible assets?  Wikipedia defines them as "identifiable non-monetary assets that cannot be seen, touched or physically measured, which are created through time and/or effort and that are identifiable as a separate asset."  A more vernacular definition might be "an asset that cannot be dropped on your foot." 

STEP convened the conference because "US investment in intangibles, according to a 2006 Federal Reserve Board staff analysis, exceeds all investment in tangible property and, if properly accounted for, would raise productivity growth significantly.  These assets - computer software, R&D, intellectual property, workforce training, and spending to raise the efficiency and brand identification of firms - are a subset of services, which now account for three quarters of economic activity. Increasingly, they are a principal driver of the competitiveness of US-based firms, economic growth, and opportunities for American workers.  Some intangibles, like intellectual property, are being securitized, auctioned, and traded; a few years ago hardly anyone contemplated the existence, let alone the extent, of such ‘technology markets.’  Yet despite these developments, many intangible assets are not reported and are treated in the national economic accounts as expenses rather than investments.  And there is no coordinated national strategy for promoting intangible investments apart, perhaps, from R&D."

The Innovator's Prescription: A Disruptive Solution to Health Care

Clayton Christensen is Professor of Business Administration at the Harvard Business School.  He is one of the world's foremost thinkers in strategy and innovation. In particular, Clay – since I know him personally, I feel I can call him by his first name - is an expert in dealing with disruptive innovations, developing organizational capabilities and finding new markets for new technologies.  In addition, he has a major quality that distinguishes him from most experts.  Not only does he repeatedly come up with great ideas, but he also comes up with innovative ways of communicating his ideas so that they are accessible to lots of people in the business world and the general population. 

Clay is also an accomplished writer.  His first book, The Innovator's Dilemma is a classic.  His second book, The Innovator's Solution - co-written with Michael Raynor – is a comprehensive guide to innovation in all aspects of a business.  I use it extensively in my MIT graduate seminar.

His new book, The Innovator's Prescription: A Disruptive Solution to Health Care - co-authored with Jerome Grossman and Jason Hwang, - is scheduled to come out on September 19 of this year.  When I learned that he is co-author of a new book on health care, I quickly invited him to MIT to give a public lecture on the subject.  Clay came to MIT last month, and not only was his seminar - which can be seen here - excellent because of its fascinating content, but it could also serve as a master class on how to discuss a very complex subject in an accessible, interesting and elegant way.

Breaking the Petaflops Barrier

Last week, the US Department of Energy announced the first supercomputer to achieve a petaflop of sustained performance.  It will be housed at the Los Alamos National Laboratory in New Mexico.  The machine designed and built by IBM, is named Roadrunner, after New Mexico's state bird. 

A petaflop is a million billion calculations per second, that is, a 1 followed by fifteen zeros.  That is how many calculations per second Roadrunner can perform.  When talking about petaflops, the numbers are so large that it is hard to comprehend what they mean.  We are almost into numbers of astronomical dimensions. 

The IBM press release used a few analogies to describe the power of Roadrunner, such as "The combined computing power of 100,000 of today's fastest laptop computers";  and, "It would take the entire population of the earth, - about six billion - each of us working a handheld calculator at the rate of one second per calculation, more than 46 years to do what Roadrunner can do in one day."

The previous major milestone for supercomputers was the teraflop - which is a 1 followed by twelve zeros.  Crossing the teraflops barrier was a huge deal for the supercomputing community when we did it in the late 90s.  And here we are - only ten years later - with a machine which is 1000 times more powerful than a teraflop machine.

Innovation Teams 2.0

It was not all that long ago that innovation was viewed as something that took place almost exclusively in academia, as well as in R&D labs in the private and public sectors.  The scientific and technological knowledge resulting from such research, then made its way to new products and services in the private sector, and advanced weapons for the military.  Such a lab-centric model of knowledge and innovation, relied primarily on the scientists and technologists working in the labs to come up with new ideas and products, which they then threw over the transom to those responsible for marketing, selling and customer support. 

This ivory tower view of innovation made sense in the industrial economy of the last two hundred years, when our primary focus was on inventing, developing and manufacturing physical objects.  But the model started to break down several years ago.  A surprising finding in the IBM 2006 Global CEO Study was that when asked where they looked for fresh ideas and sources of innovations, CEOs cited clients, business partners and employees in general about two to three times more often than their own R&D labs, which were mentioned by just over 15%.  This clearly would not have been the case only a decade ago.

I believe that this is another indicator of the massive shift that is taking place in the very nature of innovation, as we are transitioning from an industrial to a knowledge-based economy.  A growing portion of a company's innovation is now taking place in the marketplace, where clients, business partners and a large fraction of the employees are found - not just in R&D labs as was the case in the past.  How then do you now organize innovation in a company - when the real experts are those employees closest to the marketplace and the products and services that their clients buy and use?

The 2008 IBM Global CEO Study

IBM just released the 2008 Global CEO Study.  IBM has been conducting such studies every two years for the last several years by interviewing hundreds of CEO's around the world.

Four years ago, the 2004 study found that CEOs were emerging from the depressed business environment caused by the bursting of the dot com bubble, and were beginning to shift their priorities from cost cutting to driving profitable growth and strengthening overall financial performance. 

The overriding theme of the 2006 Global CEO Study was innovation.  CEOs were starting to recognize that innovation cannot be treated as just a marketing initiative and delegated down in the organization.  They realized that their organizations had to make fundamental changes to respond to the significant external forces all around them.  They were learning how difficult it was to drive change in the organization.  Therefore, to be successful, innovation had to be orchestrated from the top, with the CEO personally leading the charge.

The Enterprise of the Future is the key theme of the 2008 CEO Study.  The study is based on face-to-face interviews with 1130 CEOs in 40 countries across 32 industries.  They are distributed fairly evenly around the world, with roughly one third each from the Americas, EMEA and AP.

Some Thoughts on Global Companies in the 21st Century

Given my long association with IBM, the close relationships I have enjoyed with a number of our clients, and my recent involvement with Citigroup, it is not surprising that I am very interested in exploring what it takes for an organization to thrive in our increasingly global and highly diverse world.  Perhaps my personal multi-cultural background is also part of the reason I am so attracted to the subject.

Managing a large, global organization is indeed very difficult, especially in our unpredictable, emergent, fast changing and intensely competitive market environment.  While some might thus conclude that the answer is for a company to resist doing business around the world, the reality is that managing a business, any business, is a very tough job fraught with perils, as evidenced by the high mortality rates of companies from start-ups to those in the Fortune 500.

Are there any basic principles that might serve as guidelines in the management of globally integrated companies?  Based on my personal experiences, I think there are a few, that if carefully applied might prove useful.  Let me share my thoughts on the subject.

Nurturing a Healthy Innovation Environment

I strongly believe that top talent is the most important asset for any business that aspires to a leadership position in the knowledge economy.  Talent enables a company to better cope with, adjust to and thrive in our fast changing, unpredictable world.

But while the presence of top talent is a necessary condition for leadership, it is not sufficient.  You need to put that talent to work, not only contributing to the operational excellence of the business, but focusing on innovation, so the company can survive the onslaught of new competitors and retain its leadership position into the future, as well as be able to evolve and become a leader in important new areas

Fostering a spirit of innovation among talented people is very difficult.  Why is that?  Lots of excellent management books have been written on the subject, but I would like to offer a more personal explanation.

Web 3.0: Materializing the Conceptual Worlds of the Mind

Last week I was in London, where I participated in a very unique lecture sponsored by Design London.  Design London is an initiative announced last year to combine the creativity and expertise in design from the Royal College of Art, engineering from Imperial College's Faculty of Engineering, and the business of innovation from Imperial College's Tanaka Business School.  It was established to stir together the scientific, engineering, business and creative design communities to enhance business and public sector innovation.
 
The lecture - Web 3.0: Materializing the conceptual worlds of the mind - is part of Design London's STIR lecture series.  The STIR - Simulator, Teach, Incubate, Research - lectures aim to address a wide range of subjects from widely different personal experiences and points of view.  Many times throughout my career have I participate in joint lectures and panels, but never before have I done so with a film director – John Maybury, -  and an architect and designer – Nigel Coates.  That was a most gratifying and stimulating first for me.

Reflections on Cloud Computing

Over the last year, I have become intrigued by the rise of cloud computing.  An increasing number of articles are being written on the subject, as a quick online search of the term will attest.  More and more companies are taking a serious look at cloud computing.

Last summer, IBM launched a study of cloud computing sponsored by the IBM Academy of Technology and led by our top experts in the area.  The study was very positive about the opportunities of cloud computing for the IT industry.  But it also highlighted the many challenges to be addressed in deploying cloud computing, especially in existing data centers.

So, what exactly are we talking about?

Lou Gerstner at MIT

Leadership was the overriding objective of the graduate seminar I taught at MIT last Fall, - Technology-based Business Transformation, - which I will be teaching again in the Fall of 2008.  I told the students at our first meeting that I hoped the course would help them develop or enhance their leadership skills, so they can better deal with the complex systems, complex markets and complex organizations they will likely encounter throughout their careers.

In the course, we used Lou Gerstner's book "Who Says Elephants Can't Dance", which all students read and we discussed extensively in class.  Given my professional relationship with Lou, with whom I worked closely in his nine years at IBM, I invited him to come lecture to the class. He accepted, but due to health problems we had to postpone his visit. 

Lou’s visit to MIT took place on March 12.  While my class was not in session this semester, we scheduled a breakfast meeting with all students in Systems and Design Management (SDM), the program that most of my students belong to, a public lecture as part of the Dean's Innovative Leader Series at the Sloan School of Management, and a few smaller meetings.   

SDM is an interdisciplinary program between the School of Engineering and the Sloan School of Management, whose graduates receive a master of science in engineering and management.  To kick off our discussion, I read a paragraph from Lou's book, which I had used in the section on organizational culture in the class:

"I came to see, in my time at IBM, that culture isn’t just one aspect of the game – it is the game.  In the end, an organization is nothing more than the collective capacity of its people to create value.  Vision, strategy, marketing, financial management – can set you on the right path and can carry you for a while.  But no enterprise – whether in business, government, education, health care, or any area of human endeavor - will succeed over the long haul if those elements aren't part of its DNA."

An Exciting New Challenge

At the beginning of March, I started to work with Citigroup as strategic advisor for innovation and technology.  This is a part-time position, which I will take on while continuing my current activities with IBM, MIT and Imperial College. 

When I retired from my full time position at IBM last May, my intent was to continue working pretty much full time, but instead of doing so at one company - as I had done for 37 years - I wanted to now do so by working closely with a few different institutions.  In particular, I wanted to split my formerly one-company job roughly three ways:  one third with IBM; one third with MIT and other universities; and one third doing something entirely different.  In addition, I wanted to continue my participation in various boards and committees.

The first two thirds of this equation has worked out very nicely since I started my post-retirement life in June, perhaps because they were essentially a continuation of activities I was already involved in.  The final piece of the puzzle took more time, but I believe it is now in place with my new relationship with Citigroup.

There are multiple reasons why working with Citigroup is appealing.  At the top is innovation, and in particular, how technologies are transforming whole businesses and industries.   This was, after all, the subject of my recent graduate seminar at MIT, which I will be offering again this coming Fall.

It is one thing to talk about how disruptive technologies are transforming an industry - it is another to be part of that industry, see it happen from the inside, and get personally involved in helping to formulate the proper strategies to take advantage of the disruptive transformations taking place all around us.  So, when the recently appointed CEO Vikram Pandit offered me the opportunity to come work at Citigroup - it did not take me long to accept.

Social Pheromones and X-Reality

The MIT Media Lab is launching a new research initiative - X-Reality.  Broadly speaking, X-Reality will focus on the integration between the virtual and real worlds at several levels.  The new initiative aims to bring together related Media Lab projects in this new area, to share their diverse viewpoints and research approaches, and hopefully accelerate progress.  A series of weekly seminars has been organized, and I was invited to speak to the group a few weeks ago.  Let me share some of my comments.

I have believed for a while that the killer apps for new interactive, immersive, visual interfaces will be virtual meetings, and distance learning.  Everything else being equal, physical meetings and classroom learning are much preferred over their virtual and distance counterparts.  But, as we well know, this is not always possible, or even desirable.  That is why telecommunications and networks have been among the most successful technologies in history - from the telegraph and telephone, to the Internet and mobile devices.

It is stating the obvious to point out that many meetings cannot possibly be held in person, especially when the participants are in geographically distant locations, and when different meetings in the same day involve different people in different locations.  Moreover, many workers consider it a godsend not to have to travel hours just to attend a short meeting that they can more efficiently handle electronically from their homes or offices. 

So, the real research question is not which are better, virtual or physical meetings, distance or classroom learning.  Rather, the key question is: what is the right balance of physical and virtual interactions needed to have really effective working meetings and learning experiences?  We all pretty much agree that even though you often have to work with people that you have never physically met, it is far better to work with people that you have met physically at least once, and even better, that you continue to interact with them physically from time to time.

Technology, Innovation and Social Action

A few months ago I received an e-mail inviting me to come talk to the Provost Council at St John's University.  St. John's "is one of America's leading Catholic universities – recognized for its superb academic programs, diverse student life, BIG EAST excitement and New York vitality."  The talk would be in their main campus in Queens, so it would be easy for me to drive there from my home.  Given that I like to visit and give talks in universities, I quickly accepted and we settled on a late February date.

They wanted me to talk on the applications of technology and innovation for social action -- in particular, how technology and innovation might be leveraged to eradicate poverty and to help those who do not have the basic needs of life.  St John's, they explained, was founded by the Vincentian Community in 1870.  The Vincentian Family is known for championing the needs of the poor.  They take their name and inspiration from St Vincent de Paul, a priest who lived during the 17th Century in France.  After learning of the hunger and the plight of the poor in the French countryside, he devoted himself to ministering to their needs.  He died in 1660 and was canonized in 1737. 

St. John's has launched a new initiative, the Vincentian Institute for Social Action (VISA).  They are reflecting on what it means to be a Vincentian institution in the 21st century.  They want to "become known worldwide for addressing issues or poverty and social justice."  They want to do so through "innovative teaching, research and service in a distinctively Vincentian approach, i.e., action and service with impact.”

As I have been repeatedly writing in this blog, I really believe that technology and innovation are now enabling us to address the most complex problems in science,  business and society.  What is more complex, - and more important, - than to consider how to best leverage technology and innovation to address the critical issues surrounding poverty and social justice?

So, I put together a talk on Social Action Innovation in the Knowledge Age.  After first discussing the new technologies and capabilities we now have at our disposal, I talked about their potential applications in four key areas that I have been writing about in this blog - lifelong learning, social business entrepreneurship, corporate social responsibility and soft power.  I will focus this blog on the first area – learning, - as I have recently posted entries on the other three and drew heavily on those entries in my St John’s talk.

(Just about) All Innovation is Local

At an innovation conference in Mexico in November of 2006, the Colombian journalist Alejandro Santos reminded us, in his eloquent summary, of the advice that the great Leo Tolstoy gave to prospective writers:  "Describe your village, and you will be universal."  Santos illustrated Tolstoy's maxim with the Colombian writer Gabriel Garcia Marquez, winner of the 1982 Nobel Prize in Literature, whose world-renowned novel One Hundred Years of Solitude takes place in Arataca, the small river village of his childhood.

In other words, to come up with a successful innovation, capable of being appreciated by people around the world, you need something very compelling to offer those global markets.  And where do you find such innovative, compelling ideas?  Sometimes the answer is in world-class research labs.  But often, the best new ideas are found in those areas that you know best - right around you.

Global aspirations need to be grounded in local actions.

A Very Delicate Balance

I recently gave several talks on Technology-based Business Innovation that were based on the graduate seminar I taught at MIT last semester.  Teaching a new graduate course forces you to think really hard about what it is you want to communicate.  Trying to compress the content of thirteen, three-hour seminars into a one-hour talk forces you go the next step and think even harder about the very essence of your material.

So, what is the essence of Technology-based Business Innovation?  Why is it so very hard for any company beyond its young, entrepreneurial, adolescent years – say, ten to twenty or so - to continue to embrace the kinds of disruptive innovations that got it started and made it successful to begin with? 

As you would expect, there are no simple answers to these questions.  The more you reflect on what it takes to manage a business, the more you realize that it is very, very hard, involving lots of decisions - some small, some large.  While the people who manage companies are very smart for the most part, lots of the decisions they make do not work out - as a glance at the business section of your favorite papers will attest.  Why is that?

Enlightened Self-Interest

The January 19th issue of The Economist has a special report on Corporate Social Responsibility (CSR).  "Corporate social responsibility, once a do-gooding sideshow, is now seen as mainstream," the report starts out saying.  "Why the boom?" it later asks and proceeds to answer: "For a number of reasons, companies are having to work harder to protect their reputation - and, by extension, the environment in which they do business." 

The report further explains, "More than ever, companies are being watched.  Embarrassing news anywhere in the world - a child working on a piece of clothing with your company's brand on it, say - can be captured on camera and published everywhere in an instant, thanks to the Internet."  It continues, "As well as these external pressures, firms are also facing strong demand for CSR from their employees, so much so that it has become a serious part of the competition for talent."

Why should a business embrace CSR, not just as a feel-good part of its advertising campaigns, but as a value truly ingrained in its culture?  In the past, experts have argued against the concept from multiple points of view.  Some point out that CSR is a sideshow for a business, which diverts its energies from its number one - perhaps sole - objective: making money.  Milton Friedman, arguably the most influential economist in the second half of the 20th century, argued succinctly in a 1970 article that "the social responsibility of business is to increase its profits."  Others point out that when a business engages in social activities, it is essentially playing with other people's - its shareholders' - money.  Then there are those who claim that social actions for the common good are the proper responsibility of elected governments, not of business.  In their view, companies' claims regarding CSR should be viewed with suspicion.

I think that CSR is a fascinating subject, because it goes to the essence of what business is all about.  The top priority of a company has to be making money - otherwise it will just not survive.  However, to then describe a company as solely a profit-making machine feels very one-dimensional and somewhat old-fashioned.

Social Business Entrepreneurship

The other day, as I was driving back home from MIT, I turned on the radio, and by pure chance happened on an absolutely mesmerizing talk by Muhammad Yunus at one of the National Public Radio (NPR) stations in the Boston area.  The lecture I was listening to - “The End of Poverty: Because Poverty Is the Absence of Every Human Right” - was originally given at Boston University in October 2007.

Dr. Yunus is a Bangladeshi economist and the founder of the Grameen Bank, which he created in 1974 to help impoverished borrowers start small businesses and obtain an education.  He first loaned $27 to a small group of very poor Bangladeshi women, and gradually increased the number of loans.  He pioneered the revolutionary concept of micro-loans to help the poor in developing countries.  With these micro-loans, the poor are able to start very small businesses, and they can gradually improve their economic situations and start moving out of poverty.  Grameen Bank now has more than 7.5 million borrowers, and about 2/3 of the families receiving loans have risen above the poverty line.   

The banking system pioneered by Muhammad Yunus is now being used in more than 100 countries.  For his innovative economic and social development work, Dr. Yunus, along with Grameen Bank, was awarded the 2006 Nobel Peace Prize.  The prize announcement by the Nobel Peace committee said:

"Muhammad Yunus has shown himself to be a leader who has managed to translate visions into practical action for the benefit of millions of people, not only in Bangladesh, but also in many other countries.  Loans to poor people without any financial security had appeared to be an impossible idea.  From modest beginnings three decades ago, Yunus has, first and foremost through Grameen Bank, developed micro-credit into an ever more important instrument in the struggle against poverty.  Grameen Bank has been a source of ideas and models for the many institutions in the field of micro-credit that have sprung up around the world."

Final Thoughts on the Evolution towards a Knowledge Economy

In the last two weeks I have been writing about my feeling that 2008 might be a key year in the transition to an IT-based knowledge economy.  In the first post, I focused on the emergence of the advanced technology platforms needed to deliver a diverse set of information-rich services to a very large number of people.  In the subsequent post I wrote about the critical importance for a business to stand out and differentiate itself from competitors by providing consistent, first-rate customer service and thus building a loyal customer base.

In my third and final post on the subject, I want to focus on business values - in particular, on the critical importance of trust, responsibility and accountability in our increasingly integrated, global knowledge economy.  This subject keeps coming up over and over, from the extreme malfeasance that we saw with Enron, Worldcom and other companies when the dot-com bubble burst; to the use of lead-based paints in children’s toys and incidents involving contaminated pet food; to the evolving controversies surrounding subprime lending.

These and other incidents raise serious questions.  Just about all of us would agree that trust, responsibility and accountability are absolutely vital to the smooth functioning of open societies and free markets.  This has always been the case.  It is a major part of the culture of just about all nations.  It is, for example, a major theme of the Western movies that I so much enjoy watching - the transition from the wild, unruly, lawless West to a civilized society that protects its citizens not just from the individual bad guys but from rapacious business interests.

For individuals it is typically not very hard to tell the good guys (or gals) from the bad ones.  But for companies the line between what is and is not acceptable behavior in the process of wealth creation is often more subtle.

More on the Evolution towards the Knowledge Economy

Last week I wrote about my feeling that 2008 might be a key year in the transition to an IT-based knowledge economy.  I focused that post on one of the key indicators of that transition, namely the emergence of the kind of global technology platform that is needed to support an information-rich, knowledge-based future. 

A sophisticated IT infrastructure - with the vast amounts of information and services it makes possible - is necessary but not sufficient for a business to succeed in our global, knowledge economy.  The biggest challenge, even bigger than building the advanced IT infrastructure in the first place, is figuring out how to put it to work for competitive advantage.  This is particularly critical given an environment where competitors with innovative business models can now much more easily show up from anywhere in the world.

Given all the possible innovations a business can focus on, is there any one in particular that stands out above the rest?  I think so.  I have become increasingly convinced that consistently strong customer service is the key way for a business to differentiate itself in our increasingly global, commoditized and hypercompetitive knowledge economy.  With more choices than ever, we want those companies and brands that have won our allegiance to deal with us as if they really care about having us as customers.  This isn’t easy to do. In fact, it’s one of the hardest tasks facing any business. 

I recently read a very good column by Joe Nocera in the New York Times that nicely illustrates the value of customer service in a very personal way.

Towards the Knowledge Economy

This is the time of year when you traditionally review key events of the past year and think about your expectations for the one that is just starting.  Two years ago, I reflected on blogging, why I did it and where I thought it was heading.  It was all still very new to me - having started this blog several months earlier in May of 2005.  No longer a novelty, for me personally or for the world in general, blogging is now a part of the general environment.  Blogging has achieved liftoff, that is, it has made the transition from being used primarily by leading-edge adopters to being embraced by a wider marketplace. Technorati is now tracking over 1102 million blogs.   

Last year, I wrote about virtual worlds as a key trend that would similarly take off and become more widely accepted in the marketplace as the year progressed.  While the level of activity and marketplace experimentation is increasing, we are not quite at the liftoff stage yet.  I am convinced that highly visual, collaborative platforms and interfaces - which is what virtual worlds are all about - will become increasingly important to help us deal with IT applications in a much more human and intuitive way.  But as is often the case, it is much easier to predict that something will happen than it is to predict when it will happen.

So, for 2008, what do I find as intriguing as blogging two years ago and virtual worlds last year? 

Innovation Communities and Network Effects

I just returned from a week in London, about half of it spent at Imperial College.  I gave a couple of seminars to MBA students, and spent time with faculty and research members of the Innovation and Entrepreneurship Group, arguably one of the foremost such academic groups in the world.  A main focus of my conversations was the Design-London initiative, which was launched earlier this year as a multidisciplinary effort between the engineering and business schools at Imperial College and the Royal College of Art.

Design-London aims to "create an innovation triangle between design (represented by the Royal College of Art), engineering and technology (represented by the Imperial College Faculty of Engineering), and business and management (represented by Imperial's Tanaka Business School)."  It brings together these multiple disciplines to address jointly the challenges of innovation in an increasingly global, competitive economy.  Its main objective is to make London an innovation leader that would enable it to thrive in such a world by building on the historical strengths of the city - its history, culture, infrastructure, diversity and talent base. 

I am intrigued by the efforts around the world to make cities, regions and nations centers of innovation.  They all see major opportunities, as well as fear being left behind as the world transitions from the industrial economies of the past two hundred years to wherever it is we are heading in the knowledge or information age.  Such fears are quite rational, if not downright primal.  Becoming the equivalent of a ghost town, as the global economy passes you by, is something none of us wants for our families and communities.

Hybrid Models of Capitalism

An article in the November 29 issue of The Economist caught my attention.  Titled “Going Hybrid”, it is the lead article in a special report on business in Japan.  It examines the changes taking place in Japanese companies in the past decade as they are developing a new industrial model that combines elements of the old Japanese way of doing things with some carefully chosen bits of American capitalism.  The result is a new hybrid model of capitalism that aims to achieve the best of both worlds.

The old model was founded on three main elements:  lifetime employment, seniority-based pay and close cooperation between unions and management.  This model was well suited to the times, and formed the basis for the Japanese miracle in the second half of the 20th century, which helped Japan become the world's second biggest economy.  But as we know, the old model ran into trouble in the early 1990s, and the Japanese economy has stagnated ever since, during a period when the American economy took off, practicing a more dynamic form of Anglo-Saxon capitalism, including performance-based pay, stock options and pursuit of shareholder value.

In the late 1990s the American model seemed to have all the answers that the Japanese model was missing, but then came the dotcom crash and the series of corporate scandals and unethical behaviors that continue to this day.  Anglo-Saxon capitalism, or at least its most extreme forms, has lost some of its luster in Japan and other countries around the world.

I am fascinated by these discussions because they go to the heart of a very important question: What objectives should ultimately drive a company or business organization?  At one end are the owners or shareholders, whose main objective is typically to grow their personal wealth.  At the other are the stakeholders, including the employees of the company and the communities in which it has facilities and conducts business.  It would be quite rare - perhaps even dysfunctionally so - to meet employees who would put an abstract concept like shareholder value ahead of their personal well being, as well as that of their families, colleagues and friends.

Talent, Unpredictability, and The Strategy Paradox

I recently attended a meeting with Michael Raynor, to hear him discuss his new book, The Strategy Paradox.  Michael is a Distinguished Fellow at Deloitte Consulting, where he works on corporate strategy with senior executives across a wide range of industries.  He is co-author along with Clay Christensen of the 2003 bestseller The Innovator's Solution: Creating and Sustaining Successful Growth.  The Innovator's Solution is one of the books I used in the graduate seminar I just finished teaching at MIT this semester.  It is an excellent book, both well organized and well written - a combination not often found in business and management books.

The Strategy Paradox was published this past February, and was just named one of the best business strategy books of the year by strategy+business magazine.  Its tag line is “Why committing to success leads to failure (and what to do about it).”  "Most strategies are built on specific beliefs about the future," writes Michael in the opening of the book.  "Unfortunately, the future is deeply unpredictable.  Worse, the requirements of breakthrough success demand implementing strategy in ways that make it impossible to adapt should the future not turn out as expected.  The result is the Strategy Paradox: strategies with the greatest possibility of success also have the greatest possibility of failure.  Resolving this paradox requires a new way of thinking about strategy and uncertainty." 

He lucidly makes the point that the most successful companies often have more in common with companies that failed and are no longer in business, than they do with companies that have managed merely to survive.  The successful companies, as well as many of the failed ones, aimed to be leaders in their industries and market segments.  The former made it.  The latter did not.  Often, the only discernible difference between the two is the element of luck.  When you aim for the stars, you take risks, and those risks will often do you in.  The best way to improve your chances of survival is to take fewer risks, a strategy that usually leads to mediocre firms.

Innovation, Fundamental Research and Universities

The October 13 issue of The Economist included a special report on innovation.  The lead article set the stage when it said, "Rapid and disruptive change is now happening across new and old businesses.  Innovation, as this report will show, is becoming both more accessible and more global.  This is good news because its democratization releases the untapped ingenuity of people everywhere and that could help solve some of the world's weightiest problems."

"What is innovation?," the article later asks and proceeds to provide its own answers.  "Although the term is often used to refer to new technology, many innovations are neither new nor involve new technology."  It further adds "One way to arrive at a useful definition is to rule out what innovation is not.  It is not invention.  New products might be an important part of the process, but they are not the essence of it.  These days much innovation happens in processes and services.  Novelty of some sort does matter, although it might involve an existing idea from another industry or country."

I very much agree with The Economist's broad view of innovation, expressed in the various excellent articles in this issue, as well as in similar articles in the past.  I strongly believe that increasingly, the toughest problems, requiring the kinds of breakthrough thinking you get from the very best technologists and scientists, are out there in the real world - in the marketplace and in society at large.  So, if that is where the problems that inspire breakthroughs are, then it makes sense that the top researchers and innovators should step out of their ivory towers - whether in academia, corporations or government - and personally learn about them.  If they do, they can, one hopes, come up not only with elegant, innovative solutions to the problems, but also with new ideas that might lead to fundamental advances in science and technology.