Irving Wladawsky-Berger

Scale and Complex Systemic Innovation

The year end issue of The Economist includes a provocative column - Big and clever: Why large firms are often more inventive than small ones.  The column addresses a fundamental question that those studying innovation have been wrestling with for years:  “Are big companies the best catalysts of innovation, or are small ones better?”

The column is based on a recent study - Scale and Innovation in Today’s Economy - by Michael Mandel, chief economic strategist of the Progressive Policy Institute. 

“Conventional wisdom these days says that small is better when it comes to innovation and putting new ideas into practice,” writes Mandel at the beginning of the report.  “Large enterprises are typically thought of as hidebound defenders of the status quo, dominating by market power and brute force rather than technological and innovative prowess. . .Yet reality is far more complicated than this simple small versus big distinction. . . After 20 years where startups have rightly dominated the innovation headlines, we will show that the pendulum may be swinging back.  As a result, there are reasons to believe that scale may be a plus for innovation in today’s economy, not a minus.”

There is little question that small, entrepreneurial start-ups are almost always the ones that bring to market highly disruptive innovations.  They excel at creative destruction, the term that economist Joseph Schumpeter  popularized almost seventy years ago to describe the process of transformation that accompanies disruptive innovation. 

Entrepreneurs have sharp incentives to break into a market with a disruptive new idea that attacks the dominance of established companies.  They are highly motivated to bring to market new products which offer significantly improved designs and/or lower costs, and thus gain competitive advantage and market share from the established leaders in their segment of the market. 

But, in what has become known as the Schumpeterian Hypothesis,  Schumpeter also believed that large companies in concentrated markets have more incentives to innovate.  By investing in new products or processes, the company can sell them to their already large customer base and reap greater rewards faster.  Moreover, in a highly competitive market, startups will have trouble holding on to the gains from their innovations because they will be quickly imitated by rivals, while large companies with greater market power will be able to better protect and hold on to the gains from their innovations.  

So, which is it?  Are large companies at a disadvantage because start-ups can move much faster in bringing new ideas to market, or is their scale an incentive for investing in innovation?  Mandel summarizes the economic research evidence in two words: It depends.

Open, Collaborative Trust Frameworks

A couple of weeks ago I attended a workshop on Inventing the Future of Finance cosponsored by ID³ and the MIT Media Lab.  ID³, - the Institute for Institutional Innovation by Data Driven Design, - is a new multidisciplinary non-profit institution formed to develop architectural frameworks, open source software and educational content for the protection, sharing and monetization of sensitive data. 

It was founded by MIT Media Lab Professor Alex “Sandy” Pentland, and by John Clippinger, who is currently a Research Scientists at the Media Lab, and until recently was a Senior Fellow at Harvard’s Berkman Center for Internet and Society.  Clippinger is Executive Director and CEO of ID³, while Pentland serves as its Chief Scientist.  I just joined its Board of Directors.

One of the key missions of ID³ is the creation of trust frameworks, which it defines as:  “A combination of software mechanisms, contracts, and rules for defining, governing and enforcing the sharing and protection of information according to a common and independently verifiable standard of performance.  Whenever possible, such governance mechanisms and contracts should be self-executing and self-correcting.”

A Neural, Digital System for the Economy

Most everyone will agree that the world’s economy is undergoing historical structural changes, mostly caused by the digital technology revolution taking place all around us.  In particular, ever since the explosive growth of the Internet in the mid 1990s, we are seeing the emergence of a global, digital economy.  What does this mean?  How can we best describe the nature of this emerging digital economy?  What are some of its key implications for the overall economy?

There is clearly no simple answer to these questions.  But, I recently read one of the clearest and most elegant explanations of the changes our economy is going through in an article in McKinsey Quarterly by economist W. Brian Arthur, - The Second Economy.  Dr. Arthur is external professor at the Santa Fe Institute and visiting researcher at PARC’s Intelligent Systems Lab.

“Digitization is creating a second economy that’s vast, automatic, and invisible - thereby bringing the biggest change since the Industrial Revolution,” he writes at the very beginning of the article.  He illustrates his point with an analogy to the transformation of the US economy by the railroads in the second half of the 19th century.”

The Emergence of Cognitive Computing

On October 21 I participate in a Colloquium on the Frontiers of IT at IBM’s Thomas J Watson Research Center.  The colloquium, - which was part of IBM’s Centennial celebration, - brought together experts across industry and academia to discuss and debate the direction of four key Grand Challenges at the very leading edge of IT:  nano systems, exascale, big data, and cognitive computing.

John Kelly, senior VP and director of IBM Research, gave an overview of these four areas.  Here is a similar version of his talk given a week earlier at the University of Melbourne.  John explained that these four areas have the potential to transform the IT industry because of their exponential growth, a result of both continual improvements and disruptive innovations.  “Exponential curves,” he said, “will either put you ahead of the competition of kill you.  It’s one of the other.”

Over the next decade, nano-devices are expected to advance by three orders of magnitude, from a billion to a trillion transistors in a chip.  We will be able to design sophisticated, powerful nano systems-on-a-chip that will be totally contained within such a trillion transistor nano device.  To do so, we will have to shift from silicon to other carbon-based materials.  This requires disruptive technologies and innovations at all levels, including new materials, fabrication processes and design tools.  The work is underway.

Unleashing the Next Age of Prosperity

A few weeks ago I met with Carlota Perez in New York.  I first met Carlota, - a friend so I will refer to her by first name, - around the time of the publication of her 2002 book: Technological Revolutions and Financial Capital:  The Dynamics of Bubbles and Golden Ages.  In her book, as well as her many articles and lectures, she frames the turbulent times we are going through into a clear, historical perspective.  Let me briefly summarize her views. 

Over the past couple of centuries, we have had a technology revolution every 40 - 60 years, starting with the Industrial Revolution in 1771, which was characterized by the emergence of machines, factories and canals.  This was followed by the age of steam and coal, iron and railways which started in 1829; steel and heavy engineering (electrical, chemical, civil and naval) starting in 1875; and the age of the automobile in 1908.  Our present information technology and telecommunications age, whose starting point Perez pegs at 1971, is the fifth such major revolution in that span.

Each such technology revolution is composed of two very different periods, each lasting 20 - 30 years.  The installation period is the time of creative destruction, when new technologies emerge from the lab into the marketplace, entrepreneurs start many businesses based on these new technologies, and venture capitalists encourage experimentation with new business models and speculation in new money-making schemes.

Services, Production and Clouds

Last week I wrote about the workshop I recently attended in IBM’s Almaden Research Lab on The Co-Evolution of Future Technologies, Skills, Jobs, and Quality-of-Life.  In particular, I discussed the talk on the IT-based transformation of services given by John Zysman, professor of political science at UC Berkeley and co-director of the Berkeley Roundtable on the International Economy.

Professor Zysman key premise is that the service transformation we are going through is truly an Algorithmic Revolution, that is, the ability to formalize and codify the activities underlying services, express them as computable algorithms and capture them in software.  Given the major advances in the power and costs of information technologies, many more such service activities are now amenable to be transformed into algorithms and embodied in software.  This is profoundly changing the nature of business and just about all other institutions in society, as  they increasingly turn to IT-based services to add value to their offerings.

Over the past several years I have given a number of seminars on technology and innovation in services.  It has been a tough subject to teach.  Services, along with their creation and consumption, have been difficult to define.  So, like many others, I have discussed services and their attributes in contrast to what they are not - physical products that are generally manufactured in factories.  But, while such a definition of services and the service sector of the economy may have worked well in the past, it does not work so well now.      

One of the major consequences of the IT-based transformation of services is the blurring of the lines between manufactured products and products delivered as services, as well as between the industrial and service sectors of the economy.  The distinction between products and services blurs, as physical products are increasingly embedded into service-based solutions, where the clients pay for the services they receive, not the products embodied in the solutions.  The traditional boundaries between the industrial and service sectors of the economy have been breaking down.

The IT-based Transformation of Services

On September 27 I participated in a workshop at IBM’s Almaden Research Lab on The Co-Evolution of Future Technologies, Skills, Jobs, and Quality-of-Life.  The key objective of the workshop was to explore how new technologies are changing the economics of work activities, and to understand the frameworks, theories and models that might help us better deal with these economics changes.

In a series of talks and panel discussions, the workshop first reviewed the historical patterns of technology innovations and economic cycles, and then looked at the future of work economics in three key areas: technologies and societal infrastructure; skills and jobs; and careers and quality-of-life measures.  I gave a presentation on Job Creation, Education and Entrepreneurship in the Emerging Knowledge Economy.

John Zysman, professor of political science at UC Berkeley and co-director of the Berkeley Roundtable on the International Economy, gave an excellent talk on Production, Clouds, and the Transformation of the Global Economy.  He presented a particularly interesting point of view on the ongoing IT-based transformation of services, which he calls an algorithmic revolution.  His discussion of services is largely based on his 2006 paper, The 4th Service Transformation: The Algorithmic Revolution, which was later followed by a more comprehensive 2010 paper, Services with Everything: The ICT-Enabled Digital Transformation of Services co-written with Stuart Feldman, Jonathan Murray, Niels Christian Nielsen and Kenji E. Kushida.

Leadership and Rational Thinking

As part of its Centennial celebrations, IBM held a conference in New York in September - THINK: A Forum on the Future of Leadership.  The two day THINK Forum brought together leaders from government, business and academia  to discuss the future of leadership from a number of angles, including the changing nature of the corporation, the importance of systems thinking, leading in times of deep structural changes and bringing science to leadership.

After the Forum, I spent some time reflecting on what I had heard in the various talks and panels.  Lots of different opinions and points of views were expressed.  But, I believe that an overriding message kept coming through loud and clear: to make progress in addressing the very complex problems that we all face, we must leverage the power of rational thinking.

Several speakers pointed out that the world is no longer just connected via the Internet, as we have been saying for the past fifteen years.  It is now becoming hyperconnected, given the proliferation of smart mobile devices and sensors all around us.  In such a hyperconnected world, changes now propagate and build on each other faster than ever, rendering just about all private and public institutions increasingly unpredictable and harder to manage.

But, a number of speakers also pointed out that our ability to understand the world around us is directly related to the tools at our disposal.  And, we now have an array of highly sophisticated tools that, when properly used, can help us make sense of all that complexity.  In particular, just like centuries ago telescopes enabled us to peer into the sky and better understand the universe and our role in it, information has now become a similar such tool, enabling us to now peer into our highly complex world and help us understand what is going on.

Social Business: e-business 2.0 . . . and Beyond

IBM executive Sandy Carter has just published a new book - Get Bold: Using Social Media to Create a New Type of Social Business.  I know Sandy well, having worked with her at IBM for over a decade in various initiatives.  She is now Vice President of Sales for Social Business and Collaboration Solutions, as well as one of IBM's key Social Business evangelists and strategists.

IBM announced its Social Business initiative in the Fall of 2010.  Its basic definition is simple and practical: A Social Business embraces networks of people to create business value.  When I first learned about Social Business, I thought of it as the natural evolution of IBM’s Internet and e-business strategies.  Let me explain. 

When first announced in 1997, the basic definition of e-business was equally succinct: Leverage the Internet for Business Value.  So, as Web 2.0 technologies and Social Media applications emerged several years later, it is natural that e-business would have now evolved into something like e-business 2.0, continuing to leverage (the more recent advances of) the Internet for business value.  But, as Sandy observes in Get Bold, Social Business goes way beyond its Web 2.0 implications.

The Passing of an Era

The IBM Personal Computer was announced on August 12, 1981.  Having sold its PC business to Lenovo in 2005, IBM itself did not mark the occasion, and as far as I know, neither did Lenovo or the other companies still selling IBM PC’s.  But, the 30th anniversary of this important event in the history of computing was duly noted by IBM Fellow Mark Dean, - a member of the small team that designed the original machine, - in a nostalgic and thoughtful blog.  At the beginning, Mark writes:       

 “It’s amazing to me to think that August 12 marks the 30th anniversary of the IBM Personal Computer.  The announcement helped launch a phenomenon that changed the way we work, play and communicate.  Little did we expect to create an industry that ultimately peaked at more than 300 million unit sales per year.  I’m proud that I was one of a dozen IBM engineers who designed the first machine and was fortunate to have led subsequent IBM PC designs through the 1980s.  It may be odd for me to say this, but I’m also proud IBM decided to leave the personal computer business in 2005, selling our PC division to Lenovo.  While many in the tech industry questioned IBM’s decision to exit the business at the time, it’s now clear that our company was in the vanguard of the post-PC era.”

“I, personally, have moved beyond the PC as well.  My primary computer now is a tablet.  When I helped design the PC, I didn’t think I’d live long enough to witness its decline.  But, while PCs will continue to be much-used devices, they’re no longer at the leading edge of computing.  They’re going the way of the vacuum tube, typewriter, vinyl records, CRT and incandescent light bulbs.”

Innovation and Entrepreneurship in Large Metropolitan Areas

For several years now I have been thinking about the differences between various models of innovation and entrepreneurship.  In particular, I have been trying to understand the key differences between the innovation and entrepreneurship models that have worked so well in Silicon Valley, the Boston-Cambridge area and similar high-tech, VC-based regions, and the models that might be more applicable to large metropolitan areas like New York and London.

The Silicon Valley model has become the most prominent example of what it means to be a successful innovation hub.   Over the last few decades, it has been the leading region in the creation of new high-tech products and companies based on advanced digital technologies.  A number of regions around the world have tried to become the next Silicon Valley, hoping to develop the right ecosystem mixture, - including technologists, entrepreneurs, venture capitalists, - that will establish their region as a world class center of innovation.  Most such efforts have fallen short of their goals, - a number ending in outright failure. 

Why is that?  To begin with, most successful high-tech innovation hubs have been built around the great engineering universities in their midst - Stanford and UC Berkeley for Silicon Valley, and MIT for the Boston area.  Over the years, these regions have brought together and carefully nurtured a large and fluid community of technologists and, entrepreneurs who share ideas as they move from company to company - as founders, employees, managers, board members or investors.  They have achieved a remarkable network effect particularly suitable for high-tech innovation that give them an advantage in scale that is almost impossible to replicate.

Their university-based, high tech innovation model is particularly oriented toward finding The Next Big Thing, - that is, the next big technology, product or service that will take world markets by storm, transform whole industries, and in the process, create considerable wealth for their creators and investors.  They have been at the center of several waves of disruptive innovations and creative destruction over the past few decades, and will continue to do so into the future.

But, beyond a few niche areas, this is not a model of innovation and entrepreneurship generally suitable for a large metropolitan region like New York.  A model that would work for New York has to leverage the key strengths of the region.  Let me briefly discuss three such New York strengths in particular.

The Science of Complex Systems

When I look back over my long, relatively eclectic career, complex systems have been a common theme in all the activities I’ve been involved in.  It started in the 1960s, when I was an undergraduate and graduate student at the University of Chicago majoring in physics, - the study of complex natural systems.  The research for my thesis was focused on the highly complex world of atoms and molecules.  

After finishing my studies, I joined IBM Research in 1970 and switched to computer sciences.  My main research interests were centered on large computer systems, including mainframes, supercomputers and distributed systems.  In the 1990s, my work was focused on the kinds of complex systems and applications made possible by the advent of the Internet, World Wide Web and e-business. 

Then, around ten years ago, I became very interested in the applications of technology to market-facing, people oriented complex systems, especially systems involving services.  Over the past few years, I have also become increasingly interested in economic systems. 

In addition, I started to notice that a number of the concepts and principles I learned many years ago as a physics student seem to apply to these new kind of complex organizational systems I was now interested in.  Let me explain.

The Modernization of the State

I spent the first week of June in Chile, my fourth visit in the last five years.  I was there at the invitation of Fernando Flores, President of the National Innovation Council for Competitiveness, to assist in the Modernization of the State initiative, one of the major projects in the administration of Chile’s President Sebastian Piñera. 
 
The Modernization of the State initiative is being led by Rafael Ariztia under the General Ministry of the Presidency.  It has four major objectives:

• Improve in the overall services that the government provides to all its users
• More effective and efficient government institutions
• Improve the effectiveness of government employees
• Facilitate the decentralization of the country

I first met Fernando Flores during a trip to Chile in August of 2006 to attend an international conference.  He was a Senator then, a position he held from March of 2002 until he was appointed by President Piñera to his present position in March of 2010.  We discovered that we had a lot of common interests and have since become friends.  I continued to meet with him during subsequent visits to Chile.  He knew about my strong interests in cloud computing, and last year I invited him to a briefing on the subject in IBM’s headquarters in Armonk, New York.

Flores has been very involved in the Modernization of the State initiative, both because of his position as president of the Innovation Council as well as his personal expertise in technology and management.  He holds a Ph D from UC Berkeley, has worked extensively in the fields of organizational leadership and human cognition, and written a number of books, including Understanding Computers and Cognition: a New Foundation for Design and Building Trust: in Business, Politics, Relationships and Life.

Flores feels that cloud computing has a major role to play in helping to achieve the objectives of the Modernization initiative.  We talked about his ideas earlier this year, which I thought were right on the mark.  He later invited me to assist in these efforts by coming to Chile for meetings with Rafael Ariztia and the key groups woking on the initiative, as well as to give a seminar explaining cloud computing and its potential to Chilean government officials.

IBM's Centennial

IBM is turning 100 years old on June 16.  The company is commemorating its 100th anniversary with a year-long set of activities around the world.  It is using the opportunity to reach out to many of its constituents in business, government and academia and engage with them in a variety of celebratory events, such as seminars and conferences.  In addition, IBM Chairman Sam Palmisano is inviting all members of its extended family - employees, partners, retirees, families and friends - to pledge at least eight hours of community service during 2011.

If you look at the fast changing IT industry, it is hard enough to find companies that have survived thirty years, let alone one hundred.  It is even harder to find a company that has survived this long, is in great competitive shape and continues to be among the leaders in its industry.  So, as The Economist observed in 1100100 [100 in binary] and Counting in its June 9, 2011 issue:      

“The firm’s centenary is an occasion to reflect on many things digital, but one question stands out: why is IBM still alive and thriving after so long, in an industry characterised perhaps more than any other by innovation and change?  This is not just of interest to business historians.  As IBM enters its second century in good health, far younger IT giants, such as Cisco Systems, Intel, Microsoft and Nokia, are grappling with market shifts that threaten to make them much less relevant.”

Reflections on the Transition to an Information Society

In the 1920s, Russian economist Nikolai Kondratiev observed that capitalist economies go through long term cycles of booms and depressions every 50 years or so.  These economic cycles became known as Kondratiev Waves.  More recently, Carlota Perez expanded on Kondratiev’s work, describing the central role of technological revolutions, disruptive innovations, and financial and production capital in these economic cycles.

Perez identified five such technology-based revolutions and economic cycles since the onset of the Industrial Revolution in 1771, the first one being the age of machines, factories and canals.  This was followed by the age of steam and coal, iron and railways starting in 1829; steel, electricity and heavy engineering in 1875; the age of oil, the automobile, and mass production in 1908; and our present age of digital technologies, information and telecommunications which Perez pegs as starting in 1971.

In each of these cycles, unrealistic expectations in the new disruptive technologies led to over-investments in new companies.  This eventually turned into unsustainable speculation, causing a financial bubble, which eventually crashed and resulted in a period of economic stagnation. 

In the past four cycles, once the impact of the financial bubble and economic stagnation worked themselves out, a golden age of innovation and production followed, where new paradigms based on the new technologies significantly transformed the economy and just about every single industry, as well as re-shaping the institutions of society, and the nature of work, government and even people’s personal lives.

But now,  given our jobless recovery and continuing slow growing economy in the US, we are pondering whether we are once more at the onset of a new golden age of innovation, or at the beginning of something different which will become known as The Great Stagnation.  While I am hopeful that technology, innovation and globalization will eventually lead to all kinds of new jobs, a much improved economy and a higher standard of living, none of us really knows which of these two scenarios will prevail in the future.

A Great Stagnation or a New Golden Age of Innovation?

Here is the way things are supposed to work.  Every 50 years or so, the world goes through a major technology-based economic revolution, - also known as Kondratiev Waves.  A new disruptive technology emerges out of the lab into the marketplace, becomes increasingly successful, gets embraced by entrepreneurs who start new businesses based on these new technologies, and begins to gain market share at the expense of the previous, slow moving market leaders.  These new ventures continue to attract more and more financial capital from investors, which in turn helps improve the quality and lowers the cost of the new disruptive technology and leads to many new innovative applications.     

But inevitably, the investments in new companies and applications turns into unsustainable speculation, leading to a financial bubble which eventually crashes. 

Then, after the crash, comes a time of institutional recomposition.  The now well accepted technologies become the norm.  New paradigms emerge for guiding innovation and for determining winners and losers in the marketplace.  Over time, these new paradigms significantly transform the economy and everything around it, as well as re-shaping social behavior and the institutions of society.  The previous decades of creative destruction now become a golden age of creative construction.

The MIT Forum on Future Cities

Last week I participated in a Forum on Future Cities hosted by MIT’s Senseable City Lab with support from the Rockefeller Foundation.  The Senseable City Lab was founded in 2004 by architect and engineer Carlo Ratti, who is a faculty member in MIT’s Department of Urban Studies and Planning.  Its key objective is to bring together the worlds of design and architecture with the worlds of technology and engineering, in order to understand and anticipate how digital technologies are changing the urban environment as well as their impact on people’s lives. 

The Forum on Future Cities attracted leading world thinkers from academia, industry and government to discuss the most pressing issues surrounding the large scale urbanization taking place all around us, and to explore how new mobile, smart technologies can contribute to help us better manage our rapidly growing cities.  The Forum included talks and panel discussions on a wide variety of subjects.  I moderated a session on Changing Research, which included six talks on new research ideas followed by a panel discussion.

My overriding impression of the Forum is the variety of skills and disciplines that are now coming together to study cities and urban systems in general.  Urban studies and planning has been a major area of human endeavor from time immemorial, ever since people started congregating in towns.  But, it does seem that in the last decade, the discipline has significantly expanded, for at least two main reasons.

The 2011 Tapia Conference Celebrating Diversity in Computing

Last week I participated in the 2011 Richard Tapia Celebration of Diversity in Computing Conference which took place in San Francisco, where I had the honor to give the Ken Kennedy Distinguished Lecture.

The Tapia Celebration of Diversity in Computing conference is quite unique.  It is aptly named, being the most diverse conference in computing anywhere.  This year, 53% of the participants were female, 47% male.  About 40% were African American, 26% Hispanic, 20% White (non-Hispanic) and 8% Asian.  One third were undergraduate students, one third were graduate students and the rest were professionals from industry and academia. 

They came from a wide-range of places, including historically-black colleges and hispanic serving institutions as well as places like Berkeley, Georgia Tech, Rice, UCLA, and so on.  One of its key objectives is to reassure the students that computing is the right career path for them, help them overcome any potential feelings of isolation by being in an environment with many others just like them, - regardless of their ethnicity or gender, - and increase their dedication to complete their degrees.

Complexity and Design in Warfare

On March 11 I participated in a workshop in Washington, - Design Unbound, - organized by The Highlands Forum.  The workshop explored how design-oriented approaches can help us better understand and deal with the very complex problems we are increasingly encountering in all aspects of business, economies, government, public policy, military operations and society in general.

The Highlands Forum is an informal, cross-disciplinary group sponsored by the Office of the US Secretary of Defense.  Its mission is to explore new ideas and emerging trends that will help support high-level Department of Defense (DoD) policy and strategy.  It was organized in 1994 by retired US Navy captain Richard O’Neill, who continues to serve as its leader. 

The Forum holds several meetings a year, each centered on a specific topic, mostly related to information technologies and their impact on society.  Experts from government, industry, academia, and a variety of professions are invited to discuss their ideas on the subject - to be part of a kind of strategic conversation.  Some of the areas explored by the Forum are emerging technologies, organizational development, economic competition, and the changing concept of security. 

Over the past few meetings the Forum has focused on various topics related to complex systems, - how to best understand and manage them in the present, as well as predict and shape their future directions.  In this recent meeting we discussed how to apply the concept of design to address such complex systems and problems.

The Co-Evolution of Humans and our Tools

Tools have played a critical role in human evolution for a very, very long time.  As the Tools entry in Wikipedia observes: 

“Tools are the most important items that the ancient humans used to climb to the top of the food chain; by inventing tools, they were able to accomplish tasks that human bodies could not, such as using a spear or bow and arrow to kill prey, since their teeth were not sharp enough to pierce many animals' skins . . . The transition from stone to metal tools roughly coincided with the development of agriculture around the 4th millennium BC.  Mechanical devices experienced a major expansion in their use in the Middle Ages with the systematic employment of new energy sources: water (waterwheels) and wind (windmills). . . Machine tools occasioned a surge in producing new tools in the industrial revolution.  Advocates of nanotechnology expect a similar surge as tools become microscopic in size.”

Beyond extending our physical capabilities, tools have played a major role in the evolution of our brain and mental powers:  “Using tools has been interpreted as a sign of intelligence, and it has been theorized that tool use may have stimulated certain aspects of human evolution - most notably the continued expansion of the human brain.”

Business Winners: Combining Scale with Agility

A few weeks ago I posted an entry inspired by an excellent article in The World in 2011, The Economist’s annual issue offering predictions for the following year and beyond.  Another article in the same issue caught my attention, Multinationimbles, by Matthew Bishop, who is the US Business editor of The Economist.

The article is built around a somewhat provocative premise: “The business winners will be those that combine scale with agility.”  It is provocative because people generally associate agility with entrepreneurial startups, and scale with more mature, established companies, although a few relatively young companies like Amazon, Google and Facebook have already achieved scale to complement their entrepreneurial agility. 

But the potential oxymoron in the article’s premise is the notion that a large mature company can achieve this combination of scale and agility.  Doesn’t this violate Schumpeter’s 70-year-old theory of creative destruction?  Once large and successful, aren’t companies that once revolutionized their industries supposed to be too slow and locked into the sources of their past success to respond to the new waves of entrepreneurs now attacking them with innovative products and services? 

Bishop’s article focuses primarily on the few mature companies that have achieved this important scale-agility combination: GE, Procter & Gamble, Wal-Mart, and especially IBM. 

“In June 2011, with much fanfare, IBM will celebrate its 100th birthday.  Big Blue is a rare example of corporate survival: few companies last that long, and at times it didn’t look as if IBM would either.  Its secret is not resilience alone, but an ability to reinvent itself.  As Lou Gerstner recounted in his bestseller, “Who Says Elephants Can’t Dance?”, he brought the firm back from the brink after he became its chief executive in 1993 by shifting its focus from selling hardware to selling services.  Since Mr Gerstner left, IBM has reinvented itself again - this time in how it is run as much as in what it sells - with the result that it will mark its centenary as a role model for what a company needs to be to prosper in the second decade of the 21st century.”

Bishop predicts that in 2011, “the biggest winners will be companies that can combine the advantages of scale with the agility to respond to fast-changing market conditions.”

From e-business to Social Business

At the beginning of February I participated in a Social Business Industries Symposium sponsored by IBM in Orlando.  Social business is an initiative that IBM launched last November, along with new products and services that combine social networking with advanced analytics capabilities to help organizations build trusted relationships and make better and faster decisions.

What is a social business?  In the past few years, the term has been used to mean “a non-loss, non-dividend company designed to address a social objective,” - a new kind of capitalism to serve humanities most pressing needs, pioneered by Nobel Peace Prize winner Muhammed Yunus and others.
  
But with the rise of social media, another major use of social business has emerged.  IBM’s basic definition is short and simple:  A Social Business embraces networks of people to create business value.

The Evolution of the World's Digital Payments Infrastructure II

In part I of this entry, I discussed  the need to significantly transform the world's digital payments infrastructure to support the emerging evolution toward univeral mobile digital money.  This transformation is a very complex an undertaking that will require significant research and innovation, and will likely play out over many years.  Let me summarize some of the key challenges and opportunities.  

Payment Hubs and Clouds

There is near universal agreement on the need for new payment hubs.  As McKinsey's Payment Hubs: Redefining the Industry’s Infrastructure observes:  “Banks are struggling to cope with transaction platforms that no longer serve their needs.  A legacy of silo IT architecture combined with the need for data integration is leading these institutions to investigate payments hubs as a solution.  There seems to be little consensus, however, as to what a payments hub is (even among those who are building them) and where it sits in the overall payments system.”

The study identifies three major kinds of consolidation or aggregation payment hubs.

The Evolution of Money

In 2010, the BBC and the British Museum collaborated in a project called A History of the World.  The heart of the project was a BBC Radio program which focused on one hundred objects from the collection of the British Museum, around which you can tell the history of humanity over the past two million years.  That history is presented in a series of fifteen minute podcast about each of the objects, written and narrated by British Museum Director Neil MacGregor and broadcast over the BBC throughout the year.

The objects and podcasts are organized into a number of themes.  Money is one of the themes.  It is represented by four objects:

• one of the world’s first gold coins produced over 2500 years ago in Lydia, western Turkey, whose last king was Croesus, of rich as Croesus fame;
• a 1375 banknote from the Ming Dynasty, one of the world’s first paper banknotes;
• a silver coin minted in Bolivia in the late 16th Century; these were known as pieces of eight and used as the world's first global currency throughout the Spanish Empire;
• and a plastic credit card exemplifying the changing role of money in the modern world.

Money, as one of the podcasts observes, has been one of the great constants in human affairs, right up there with sex and war.  Money was not necessary when people lived in small communities where they knew and trusted their neighbors and could therefore exchange labor, food or goods in kind.  But the need for inventing money arose once civilization started to expand and people were dealing with strangers they may never see again and could not trust, as was the case in Lydia and neighboring communities a few thousand years ago.  Money has played a major role in the world ever since, giving rise to commerce and economies, enabling the organization of companies and public institutions, and helping communities become more productive and raise their standard of living.

Smarter Cities Santiago

On November 23 I participated in IBM’s Smarter Cities Forum in Santiago, Chile.  The event brought together over 100 government, business and academic leaders from all parts of Chile, as well as many others from North America and Europe.  The Forum was hosted by IBM’s Chairman and CEO Sam Palmisano.

Why Santiago?  In his opening remarks, Sam answered this question: 

“Santiago is representative of the new urban future, both its opportunities and its challenges, that faces our planet.  In the early part of the twentieth century, Santiago had 500,000 inhabitants.  Today it has more than 5 million - or more than one-third of the nation’s total population.  This population growth has also translated into making Santiago the financial and commercial center of the country.  The metropolitan region generates 45 percent of GDP and nearly 50 percent of total household income in Chile.”

This is my third visit to the city in the last four years.  I can personally attest that Santiago is a great city, a medium sized truly global city, and  one of Latin America’s most modern metropolitan areas.  It has an extensive public transportation and highway system, an impressive high-rise architecture, great hotels and restaurants, excellent universities and a large skills base.

Along with the rest of Chile, the city enjoys a dynamic market-oriented economy, a democratic government, a positive investment environment and a high level of global trade.  It is not difficult to understand why Sam would pick Santiago as the first city in Latin America in which to personally host a Smarter Cities event.

The MIT Systems Thinking Conference

I recently participated in MIT’s 2010 Systems Thinking Conference for Contemporary Challenges.  This annual conference is sponsored by Systems Design and Management (SDM) - an interdisciplinary program between MIT’s School of Engineering and Sloan School of Management.  The SDM program aims to provide mid-career professionals with a systems perspective that will help them address and solve large-scale, global, complex challenges.  Most of the students in the classes I have taught at MIT are enrolled in SDM.

The Systems Thinking Conference is intended to showcase innovative ways of addressing complex challenges, in particular, how to integrate technology, management and social sciences to successfully solve very tough problems.  The agenda included sessions on sustainability and urban systems, health care and services.  The talks covered a wide range of subjects, from the global development of Boeing’s 787 to the home of the future.  I was co-organizer of the session on service systems, gave a talk on Technology and Innovation in the Service Economy and moderated a panel with the other speakers in the session.

John Sterman - professor in MIT’s Sloan School of Management and director of the Systems Dynamics Group - gave a very interesting talk: A Banquet of Consequences: Systems Thinking and Modeling for Climate Policy.  The title of his talk is based on a quote by Scottish writer Robert Louis Stevenson: Everybody, soon or late, sits down to a banquet of consequences.

Can New York Remain the World's Media Capital?

Over the past two years, SUNY’s Levin Institute hosted a series of panel discussions to explore the state of innovation in New York City.  Innovate New York - Envisioning an Inventive City was jointly sponsored by the Levin Institute, the New York Academy of Sciences and the Sloan Foundation.  Its basic premise was:

“New York is a global city, a diverse blend of culture, vitality, and extraordinary talent.  But the wealth of science and technology talent and innovation is less apparent, at least in the form of a thriving technology economy.”  The Innovate New York series aimed to discuss “where New York stands relative to its competitors, and to identify approaches that could capitalize on New York's strengths, shore up its weaknesses, and plant it firmly on the map as a capital of innovation.”  Panel discussions were held in a variety of areas, including finance, media, services, life sciences, arts, and culture.

I personally participated in a couple of the panel discussions, and in my role as Senior Fellow at the Levin Institute, was involved in helping to organize the series. 

The Sloan Foundation has agreed to renew its sponsorship of Innovate New York, this time focused on one industry, - media and communications, - which will enable us to explore the topic in considerable more depth.

Reinventing Relationships

On September 16, I will join the IBM Lotus team in an event in New York City - Reinventing Relationships.  The event will explore how the Web, collaboration and social software "will transform - actually reinvent - how organizations relate to their customers, partners, employees and citizens through more compelling experiences.”

Once upon a time, new technologies were first deployed in large institutions - enterprises, universities and research labs, the military and civilian government agencies, - from which they eventually trickled down to the rest of the economy as their prices and complexity dropped.  Forty years ago, for example, the computer industry consisted primarily of expensive mainframes and supercomputers that only larger institutions could afford to buy and operate.

But, this trickle-down approach to technology diffusion dramatically reversed itself with the advent of inexpensive technologies, especially digital technologies.  As a result of the incredible advances in digital components and personal computing over the past thirty years, many new innovations are first emerging in consumer markets and among communities of experimental users, from which they eventually trickle-up into the worlds of business and government applications.  Besides personal computing, we have seen such consumer and user-driven innovations in cellular and smartphones, game players, Linux, and perhaps most prominently, with all kinds of innovations around the Internet and World Wide Web.

Machine and Human Intelligence

A recent OpEd in the New York Times caught my attention - The First Church of Robotics by Jaron Lanier, a self-described “computer scientist, composer, visual artist, and author,” who did pioneering research in Virtual Reality in the 1980s.  I have met Lanier, and a few years ago participated in a panel on Virtual Worlds which he moderated.  In his excellent OpEd, he writes:

“The news of the day often includes an item about some development in artificial intelligence: a machine that smiles, a program that can predict human tastes in mates or music, a robot that teaches foreign languages to children.  This constant stream of stories suggests that machines are becoming smart and autonomous, a new form of life, and that we should think of them as fellow creatures instead of as tools.”

“. . . What bothers me most about this trend, however, is that by allowing artificial intelligence to reshape our concept of personhood, we are leaving ourselves open to the flipside: we think of people more and more as computers, just as we think of computers as people. . . When we think of computers as inert, passive tools instead of people, we are rewarded with a clearer, less ideological view of what is going on - with the machines and with ourselves.”

Jason Lanier’s OpEd inspired me to reflect on the successes and failures of artificial intelligence (AI) over the past several decades, as well as on some of the essential differences between machine and human intelligence.

The term artificial intelligence is often used in quite different ways.  At one end, is the more applied kind of AI, which is essentially the application of advanced engineering to machines and systems in particularly clever ways that are inspired by and remind us of human intelligence.  At the other end is what is sometimes called strong AI, which aims to develop machines that match or exceed human intelligence and cognitive abilities like reasoning, planning, learning, vision and natural language understanding.

Open Innovation Re-visited

Recently, some colleagues were talking about the upcoming LinuxCon 2010 in Boston - “The Linux Foundation's annual technical conference that provides and unmatched collaboration and education space for all matters Linux.”  Hearing about this conference brought me back to 1999, when we started a number of studies that culminated in the announcement of the new IBM Linux initiative in January of 2000.

By the summer of 1999, Linux was picking up steam in the marketplace, especially in areas where IBM was very involved, including Internet infrastructure and supercomputing.  At the time, a number of research institutions and leading edge companies were already using clusters of Intel processors running Linux as a way of building relatively inexpensive, and increasingly powerful supercomputers, as well as highly scalable web servers, distributed file and print servers, network firewalls, and other Internet infrastructure applications.

We commissioned a couple of studies, one focused on the use of Linux in supercomputing, and the other on Linux as a high-volume platform for Internet applications.  Both studies strongly recommended that IBM embrace Linux across its product lines, that IBM should work closely with the open Linux community as a partner in its development, and that we should establish an organization to coordinate Linux activities across the company.

I was given responsibility for our new Linux strategy and organization.  A few weeks after we announced the initiative in January of 2000, I gave a keynote presentation at the Linux World conference in New York City.  I used this opportunity to explain IBM’s decision to embrace Linux across all its products and services.  Around the same time, I also discussed IBM's Linux strategy in an interview with Charlie Rose - A Conversation about Linux.

Trip to Shanghai

I was in Shanghai the first week in June to participate in IBM’s third global Smarter Cities Forum.  The first Smarter Cities forum was held in Berlin about a year ago, and the second was held in New York City this past October.

Around 800 government, business and academic leaders from 180 cities in 38 countries participated in the Shanghai Forum.  The two day agenda included a number of main-tent talks and panels, as well as six breakout sessions. 

As in New York, I helped organize and moderated the healthcare breakout session.  I will comment on the healthcare session in a future blog, but let me first offer some personal impressions on the overall Forum.

In his welcoming remarks, IBM Chairman and CEO Sam Palmisano explained the reason for hosting this forum in Shanghai and focusing on the unique challenges that face leaders in emerging markets:  “Forecasts out to 2020 say that 97 of the 100 fastest growing cities in the world are in growth markets.  Eight are in China, 11 are in India. . . . Every minute, 30 people move from a rural area of India to a city -  and that will continue through the year 2025.”

What are the Key Qualities of a Great City?

I have always lived in or around cities.  I was born in Havana, where I spent my first fifteen and a half years.  My family then moved to Chicago, where I went to school for the next ten years.  In 1970 I moved to the New York area and have lived there ever since, including 15 years in New York City.

It is thus not surprising that I have become so interested in smart cities initiatives, that is, how to leverage technology-based innovations to help us better understand and improve the way urban areas work.

A major reason why smart cities has become such a hot topic is the rapid urbanization of the planet.  In 1900, about 13 percent of the world’s population lived in cities.  That number is now around 50 percent.  By 2050, over 70 percent of the world’s population will be in cities.  This unprecedented global urbanization is one of the biggest challenges facing everyone responsible for managing city functions, from mayors and police chiefs, to economic planners and school administrators. 

The challenges are enormous.  Urban ecosystems are extremely complex because they are composed of many different kinds of functions and intricate organizations.  A city is essentially a system of systems, and it is the interactions and interdependencies of its many parts that makes it so dynamic and unpredictable.  Their complexity will increase significantly given the expected urban growth over the next decades.  This is why we are now looking at the use of digital technologies, information-based intelligence and sophisticated modeling and simulation to help us better manage the complex challenges involved in the daily life of a city, - e.g, education, health, safety, commerce, transportation and entertainment.

Cities are also particularly interesting complex systems to study and model. What makes cities so fascinating is, - to state the obvious, - the presence of people.  Excellent public infrastructures and services are essential for a good city, but they are not sufficient.  A truly great city needs to be an appealing place to live.  It needs to attract and retain a large pool of local, national and international talent.  Liveability or quality of life is therefore the lifeblood of a good, let alone a great city.

Smarter Public Health

The increased importance and fast rising costs of healthcare in the US and many other countries are causing a much greater interest in the subject of public health - “the science and art of preventing disease, prolonging life and promoting health through the organized efforts and informed choices of society, organizations, public and private, communities and individuals.”  

We are all very familiar with the fierce political debates surrounding US healthcare reform, which culminated with the historical Health Care Act of 2010 signed into law by President Obama on March 30.  But healthcare is not only a major political challenge, but one of the grandest overall challenges facing the world in the 21st century.  

The problems are enormous at multiple levels.  Healthcare involves lots of people and institutions - patients, insurers, device manufactures, pharmaceuticals, advocacy groups, biotech, research institutions, IT companies, governments of all sorts, state licensing, state insurance commissioners, and on and on and on.  And this is before you get to the provider side, which involves doctors, nurses, hospitals, pharmacies, non-traditional providers, medical schools, and others.

"Innovation in New York" Revisited

In June of 2008 I participated in a panel, “Is New York a Center of Innovation?,” which was jointly sponsored by SUNY’s Levin Institute and the New York Academy of Sciences, and moderated by Levin Institute’s president Garrick Utley.  Since that time, the same two institutions have partnered with the Sloan Foundation and organized Innovate New York - Envisioning an Inventive City , - which has held a series of panel discussions to explore how to foster innovation in such diverse areas as finance, media, services, life sciences, arts and culture.

I joined the Levin Institute as Senior Fellow in the Fall of 2008.  Innovation in large urban regions like New York has been one of my key areas of interest.  This coming June the Levin Institute will revisit our original panel, and to better prepare for the event, I want to reflect on how much progress we have made in the intervening two years in our quest to help make New York one of the premier world centers of innovation in the 21st century.

Few will argue that the still ongoing financial crisis, has been the dominant story for the past two years in New York City, the US and the world.  For many, survival, not innovation, has been paramount in their minds.  In April of 2008, the unemployment rate in New York City was only 4.4%.  By February of 2010, the NYC unemployment rate had climbed to 10.2%, higher than the 9.7% national unemployment rate.  There are now over four hundred thousand unemployed city residents, many of them having lost their jobs as a result of the major layoffs in the financial industry caused by the crisis. 

Two years ago we could not have foreseen JumpStart NYC, one of the major programs at the Levin Institute over the past year.  The key objective of JumpStart, which I have personally been involved in as an instructor and a coach, is to help city residents who lost their jobs on Wall Street and other industries explore new career paths and opportunities in small, entrepreneurial firms in the New York area. 

But, as is often the case, out of great pain comes great opportunity.  Innovation is now even more important to New York.  We need to help create all kinds of new, well paying jobs so the NY area can dig its way out of the crisis.  But, the innovation environment now feels quite different from what it was just a very short two years ago.  Let me discuss some of those key differences.

A 21st Century Magical Mystery Tour

Isaac Newton laid down the foundations for what we now call classical mechanics with the publication of his Principia Mathematica in 1687, where his Laws of Motion, where first articulated.  Ever since, our scientific understanding of the world around us has been based on classical mechanics, - “a set of physical laws governing and mathematically describing the motion of bodies and aggregates of bodies geometrically distributed within a certain boundary under the action of a system of forces.”

Classical mechanics works exceptionally well for describing the behavior of objects that are more or less observable to the naked eye.  It accurately predicts the motion of planets as well as the flight of a baseball.  It formed the scientific basis for the technology and engineering underlying the Industrial Revolution. 

The elegant mathematical models used in classical mechanics depict a world in which objects exhibit deterministic behaviors.  The same objects, subject to the same forces, will always yield the same results.  These models make perfect prediction within the accuracy of their human-scale measurements. 

But, this stable world that could be perfectly described given enough information and scientific knowledge began to fall apart in the early 20th century.  Classical mechanics could not explain the counter-intuitive and seemingly absurd behavior of energy and matter at atomic and subatomic scales.  Neither could it explain the behavior of bodies traveling near the speed of light or the vast scales of the universe. 

To do so, physics had to wait for quantum mechanics and relativity.  Compared to the pastoral worlds that classical physics had been traveling through, the new theories that quantum mechanics, special relativity and general relativity were now spinning often had the feel of some sort of 20th century magical mystery tour.

Reflections on Smarter Healthcare Systems: Practical, Concrete, Expert Advice

On October 1 and 2 IBM held its second global Smarter Cities conference in New York City.  I subsequently wrote about the excellent talk, Great Expectations for US Healthcare, given by Dr. Denis Cortese, CEO and President of the Mayo Clinic on the first day of the conference.

The next day, there were break-out discussions in six key areas relevant to building a smarter city: transportation, education, public safety, energy and utilities, government services and healthcare.  I was co-moderator of the healthcare session, along with Dan Pelino, IBM’s General Manager of Healthcare and Life Sciences.  Our panel of experts included Dr. Cortese; Chris Coburn - Executive Director of Innovations at the Cleveland Clinic; Dr. Ronald Paulus - Chief Technology and Innovation Officer at the Geisinger Health System;  and Dr. Armando Ahued Ortega - Health Secretary of Mexico City.  Let me summarize their practical and concrete remarks.

Innovation, Entrepreneurship and the Evolution of Cities

Why is it that only a few cities and regions around the world have become successful innovation hubs, even though many have tried?  For the last few years I have been intrigued by this question. 

Silicon Valley and the Boston-Cambridge area are among the most prominent such innovation hubs in the world.  Their leading positions as technology-based innovation centers have been near impossible to replicate.  Others have tried to become the Next Silicon Valley.  A few of these efforts have achieved modest success, but most have fallen short of their goals.

Why is it so difficult?  The reasons are varied.  The prominence of Silicon Valley and the Boston-Cambridge area is closely related to the great engineering universities in their midst – Stanford and UC Berkeley, and MIT, respectively.  It clearly takes quite a long time to build such world class universities. 

Even harder to replicate is the entrepreneurial culture of these universities.  They strive to bring innovations to market by partnering with the private sector, including VCs to help them start new companies and established enterprises to jointly develop and commerciale new ideas.  Many other top universities have a more ivory tower culture that causes them to be suspicious of anything having to do with commerce.

Designing a Smart Healthcare System

On October 1 and 2 IBM held its second global Smarter Cities conference in New York City.  The first such conference was held in Berlin this past June, and the third will be held in Shanghai next year.

As was the case with Berlin, the New York Smarter Cities event had a very impressive agenda.  It included talks by IBM Chairman and CEO Sam Palmisano, New York City mayor Michael Bloomberg, and Melody Barnes, Director of the White House Domestic Policy Council.  The agenda also included panels with governors, mayors, and leaders of cultural institutions. 

In addition, there were break-out discussions to enable participants to share their experiences on what it takes to build a smarter city in six key areas: transportation, education, public safety, energy and utilities, government services and healthcare.  I helped organize and moderated the healthcare session.  Our panel included Denis Cortese - CEO and President of the Mayo Clinic; Ronald Paulus - Chief Technology and Innovation Officer at the Geisinger Health System; Chris Coburn - Executive Director of Innovations at the Cleveland Clinic; and Armando Ahued Ortega - Health Secretary of Mexico City.

The Smarter Planet University Jam

For several years now, IBM has used a Web 2.0 collaborative approach to exploration and problem solving called Jams.  Jams help discover new solutions to broad, complex problems by bringing together a wide variety of minds and perspectives.  They are essentially massive online discussions, where people contribute their own ideas, as well as build on each other's ideas in a kind of structured conversation, under the guidance of subject-matter experts and moderators.  A Jam typically lasts around three days, and after it is completed, extensive analysis is used to extract insights from the perceptions and comments of the Jam participants, and to develop plans to put the insights into action.

In 2003, a Values Jam involving more than 300,000 IBM employees around the world was used to redefine the core IBM values for the 21st century.  Two years later, the Government of Canada, UN-Habitat and IBM hosted Habitat Jam.  Over three days, tens of thousands of participants from over 150 countries, including urban specialists, government leaders, and residents from cities around the world, discussed issues of urban sustainability.  Their ideas shaped the agenda for the UN World Urban Forum, held in Vancouver in June of 2006.

Then in 2006, an Innovation Jam brought together more than 150,00 people from over one hundred countries, including IBM employees, clients and partners, to help identify the ten most innovative new ideas in which to invest $100 million.  IBM’s virtual worlds initiative was one of the recommendations coming out of the Jam.  So were a number of projects, including intelligent utility networks, integrated transportation systems, smart healthcare payments, and Big Green innovations that helped form the core of IBM’s Smarter Planet initiative launched in November of 2008.

A Kind Of 21st Century Age of Enlightenment

Cities have long been important areas of study in a variety of disciplines, including sociology, civil engineering, architecture and urban studies.  But such studies have recently gotten a big boost for a number of reasons. 

Foremost among them is the fact that our planet is becoming increasingly urbanized.  In 1900, only about 13 percent of people lived in cities.  We recently crossed a threshold, when for the first time ever, the world’s urban population now equals its rural population.  Moreover, from now on, cities will absorb all the population growth expected over the next decades while continuing to draw some of the rural population.  By 2050, cities are project to have around 70 percent of our planet’s population.

Something must clearly be done to help cities absorb all those people, and provide them the right infrastructure, jobs, places to live, public safety, education, health care and many other services, all the while being cognizant of the impact that this growing urbanization will have on the sustainability of the planet.  This is about as daunting a task as anyone can imagine.  But fortunately, advances in technology, science and engineering are providing us with all kinds of new knowledge, innovations and concrete tools to help us in this monumental undertaking.

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.”

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.

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.