Irving Wladawsky-Berger

My Upcoming 50th High School Reunion

I graduated high school in 1962 from the University of Chicago Laboratory Schools, usually referred to as U-High.  This June we will be celebrating our 50th class reunion, and, this being 2012, some classmates set up a social media group site that any member of the class of '62 can link to and participate in an online conversation.

Through the years, I have been involved with the University of Chicago (U of C), which I attended after high school for both college and graduate school.  In particular, I have been a member of the Physical Sciences Division Visiting Committee for years.   But, I have not been involved with U-High, perhaps because I only went there for my junior and senior years.  I have not attended previous class reunions, and was not sure if I would attend the 50th reunion when I first heard about it.  But I joined the online group site, as a way to learn about high school classmates which I have not heard from in almost fifty years. 

The group discussions started slowly, but after a few days, I was really looking forward to the postings.  It has proved to be fascinating, not only because of what I am learning about my classmates' lives, but because the discussions of teachers, neighborhood places, and class events have brought to mind many long forgotten memories.  I feel like a character in a coming-of-age film, who as an older man, is reminded of an important period of his youth, which he then proceeds to narrate.

Principles for Managing Strategy and Innovation

Through the years, I have been intrigued by the number of once powerful companies that are no longer around.  Darwinian principles seem to apply in business as much as in biology.  When technology and market environments go through major changes, as is certainly the case today, previously successful business strategies will no longer work, no matter how much you try to fix them.  Companies that are unable or unwilling to adapt to the changes in such a Darwinian climate will become marginalized or extinct.

It is not hard to understand how I come to this somewhat fatalistic view of business.  In the IT industry, I have seen many once leading companies disappear altogether or become shadows of their former selves.  IBM's near-death experience in the 1990s was very painful for me personally and for all us in the company.  Even though IBM managed to survive, as well as to regain a position of leadership in the IT industry, the experience has definitely left its imprint and colors my views of the world.

More recently, Citi, which I joined as strategic advisor in March of 2008, has gone through its own near-death experience as a result of the financial crisis of the past few years.  As we know, quite a number of once mighty financial institutions did not survive the crisis.  

Why is it that some firms are able to go through ups and downs, yet survive and thrive?  What accounts for their long term, enduring success?  Are there any principles or patterns that can help guide companies through these highly uncertain times and allow them to not only survive but emerge stronger than before?

The Legend of Apple and Xerox PARC and the Truth About Innovation

Every December for the last few years, NY Times OpEd columnist David Brooks picks the best magazine essays of the year.  He describes his choices in two of his columns, with links to the essays in their online version.  I generally really like his selections.  One of his choices this year is a New Yorker article by bestselling author Malcolm Gladwell - Creation Myth: Xerox PARC, Apple, and the truth about innovation.

Gladwell is a great storyteller.  He uses Steve Jobs’ legendary 1979 visit to Xerox PARC as the springboard for his reflections on the nature of revolutionary innovations.  While describing his version of the legend, he also gives us his version of the truth about innovation, including the evolution of an innovation concept from original idea, to lab experimentation, and on to marketplace success; the role that environment plays in the eventual fate of an innovation concept; and the messy, probabilistic, hit-and-miss nature of disruptive innovations.

Xerox founded its Palo Alto Research Center (PARC) in 1970, which brought together some of the world's best computer engineers and programmers.  In the 1970s, PARC was the mecca for innovation in computing.  In 1979, Steve Jobs asked Xerox to let him tour PARC, and in return he would allow Xerox to buy a hundred thousand shares of Apple for a million dollars.  After much discussion, Xerox agreed.

Open Services Innovation

Earlier this year, UC Berkeley professor Henry Chesbrough published a new book, Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era.  This is his third book on open innovation in the last eight years, having published Open Innovation: The New Imperative for Creating and Profiting from Technology in 2003, and Open Business Models: How to Thrive in the New Innovation Landscape in 2006.

Professor Chesbrough is in the faculty of Berkeley’s Hass Business School and executive director of the Garwood Center for Corporate Innovation and of the Program in Open Innovation.  I met him over a decade ago when I first got involved with Linux and open, collaborative innovation.  He is a top expert on the value of open innovation to business.

When I recently found out that he had published a book on services, I was eager to learn how he framed the subject.  For over ten years now, I have been thinking about the application of technology and innovation to services.  Over the years, I have given quite a few seminars on the subject, including a graduate course in MIT in the Fall of 2010.  I have also written a number of entries on services in this blog.

Jobs in the Age of Watson

On October 31, I participated in a symposium sponsored by MIT’s Center for Digital Business on The Race Against the Machine: The Future of Technology and Employment.  The symposium was associated with an event that took place later that same day on the Harvard campus, the IBM Watson Challenge.  The Watson Challenge was an exhibition Jeopardy! match between Watson, IBM’s question-answering system, three students from the Harvard Business School and three students from MIT’s Sloan School of Management.  Watson won the exhibition match, with the Harvard team finishing a close second.

At the MIT symposium, I was part of a panel on How will technology affect productivity and employment? The panel was moderated by MIT management professor Erik Brynjolfsson, who is also the director of the Center for Digital Business.  The other panel members were MIT economists David Autor and Frank Levy.  We discussed the impact of technology on jobs, in particular, the impact of advanced systems like Watson which are pushing the boundaries between human and machine capabilities

Race Against the Machine

Erik Brynjolfsson and Andrew McAfee just published an excellent short (sixty pages, less than twenty thousand words) e-book - Race Against the Machine: How The Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy.  Erik Brynjolfsson is a professor at MIT’s Sloan School of Management and director of the MIT Center for Digital Business.  Andy McAfee is Principal Research Scientist at the Center for Digital Business, as well as serving as its associate director.   

“This is a book about how information technologies are affecting jobs, skills, wages, and the economy,” they write in the opening sentence.  There are few more timely and vital subjects.  During the 2007 - 2009 Great Recession, unemployment increased by as much as 5.7%, the largest increase in the post war period. 

But, recessions are always accompanied by job losses.  A more perplexing problem is our jobless recovery since the recession was declared officially over.  The seemingly recovering economy is not putting enough people back to work.  More than two years after the recession officially ended, US unemployment is still over 9 percent.

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.

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.

We Are All New Immigrants to the Hyperconnected World

Last week I wrote about Think: A Forum on the Future of Leadership, a conference that IBM held in New York on September 20 and 21 as part of its Centennial celebrations.  The THINK Forum included a number of talks and panels which looked at leadership from a number of different angles.

One of the speakers was Tom Friedman, Foreign Affairs columnist for the New York Times and renowned author of a number of books, including The World is Flat.  Tom (whom I know personally and will therefore refer to by his first name) moderated a session on The Importance of Systems Thinking.  He then gave an excellent talk focused on the themes in his new book - That Used to Be Us: How America Fell Behind in the World It Invented and How We Can Come Back.  The book was co-authored with John Hopkins Professor Michael Mandelbaum.

Tom said that the biggest challenge we all face is that in the last few years we have gone from a world that was connected to a world that is now hyperconnected.  He observed that when he started writing That Used to be Us, he went back and looked at The World is Flat, which he had written in 2004.  In the earlier book he never mentioned Facebook, Twitter, Cloud, LinkedIn, 4G or Skype.  These companies and technologies had not been born or were in their infancy in 2004, yet they are now a major part of our conversations.  In these short number of years, we have moved from a flat to a hyperconnected world.

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.

Innovation in Higher Education

A glance at the latest US employment figures from the Bureau of Labor Statistics reveals sharp differences in unemployment rates by educational attainment: college degree or higher: 4.3%; associate degree or some college: 8.2%; high school graduates, no college: 9.6%; and no high school diploma: 14.3%.  Moreover, while the overall unemployment rate remains over 9 percent, a recent McKinsey report found that employers are having trouble filling specific positions because they could not find applicants with the right skills.  The report projects that if economic conditions improve, there will be a shortage of 1.5 million workers with college degrees by 2020, but a surplus of almost 6 million of workers with no high school degree.  It also projects a continuing shortage of workers with technical and health care skills not necessarily requiring a college degree.

Just about every such study points to a similar trend: for the foreseeable future, the US economy will need better educated workers with specific skill requirements.  Workers without a post-secondary education face a contracting set of job opportunities.  Those with higher educational attainments will be in the best position to obtain good jobs with good pay. 

Thus, we need to significantly increase the number of students receiving post-secondary education.  However, our colleges and universities, the very institutions to which the country should turn to help us address these increased educational demands, are facing problems of their own. Tuition costs have risen much faster than the rate of inflation and keep going up, thus making it harder for them to serve the students most in need of their services.  Many educational institutions are facing financial difficulties.  The financial crisis has been aggravating the situation, at both public and private institutions.  Government education budgets are under huge pressure at all levels, - local, state and national.

Incremental steps will not make much of a dent on the problem. We need to look at higher education through the lens of disruptive innovation, argues a report published last February, - Disrupting College: How Disruptive Innovation Can Deliver Quality and Affordability to Postsecondary Education.  The report is written by Clayton Christensen, Michael Horn, Louis Caldera and Louis Soares.

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 Limits of Meritocracy

In March of 2010, The Atlantic published an excellent article by Don Peck which painfully described the dire consequences of a long period of high unemployment on US society -  How a New Jobless Era will Transform America.  According to Peck, the consequences of prolonged unemployment are not only bleak but truly systemic in nature -  “a slow-motion social catastrophe.”  Joblessness is more devastating to families and communities than poverty, he wrote:

“The Great Recession may be over, but this era of high joblessness is probably just beginning.  Before it ends, it will likely change the life course and character of a generation of young adults.  It will leave an indelible imprint on many blue-collar men.  It could cripple marriage as an institution in many communities.  It may already be plunging many inner cities into a despair not seen for decades.  Ultimately, it is likely to warp our politics, our culture, and the character of our society for years to come.”

Peck just published another very good article in the September 2011 issue of The Atlantic - Can the Middle Class be Saved?  In this article, his focus is on what he refers to as The Culling of the Middle Class:

“Arguably, the most important economic trend in the United States over the past couple of generations has been the ever more distinct sorting of Americans into winners and losers, and the slow hollowing-out of the middle class.  Median incomes declined outright from 1999 to 2009.  For most of the aughts, that trend was masked by the housing bubble, which allowed working-class and middle-class families to raise their standard of living despite income stagnation or downward job mobility.  But that fig leaf has since blown away.  And the recession has pressed hard on the broad center of American society.”

The 20th Anniversary of Linux

In mid-August I traveled to Vancouver to attend LinuxCon, the industry’s premier Linux conference.  The conference is organized by the Linux Foundation, which is the nonprofit consortium dedicated to fostering the growth of Linux.

This year marks the 20th anniversary of Linux, which made the conference particularly special.  Most of the keynotes reflected on the impact of Linux on the computer industry and on society in general.  A number of additional activities were also planned to celebrate this important milestone.

The history of Linux was summarized in this charming three and a half minute video:
 
“ . . . It was August of 1991, and a 20 year old computer science student named Linus Torvald sat down at his computer in Helsinki to post what is now one of the most famous entries in computer history: ‘Hello everybody out there, I am doing a free operating system, just a hobby, won’t be anything big and professional like gnu, it probably will never support anything other than AT-hard disks, as that is all I have’ . . . word of the Linux open source project quickly spread around the globe . . . Linus named his OS kernel Linux, and chose a penguin as a mascot after a little incident at the zoo.” 

“He soon made a very important decision that would shape Linux’s future just as much as the technology.  He chose the GPL license created by a visionary named Richard Stallman.  The Linux kernel, along with the GPL license and other GNU components revolutionized the computer industry with a few very simple, yet very important freedoms:  the freedom to use the software for any purpose; the freedom to change the software to suit your needs; the freedom to share the software with your friends and neighbors; and the freedom to change the changes you make. . .”

 . . . and the rest is history.

Job Creation and America's Future

This past June, the McKinsey Global Institute published one of the most comprehensive reports I have seen on the high unemployment and jobless recovery the US has been going through for the past few years - An Economy that Works: Job Creation and America’s Future.  The report is based on a McKinsey research study that surveyed 2,000 business leaders, conducted detail interviews with a number of human resource executives, examined in depth those sectors of the economy with the highest potential for growth, developed a number of detail scenarios for how the US employment picture might evolve into the future, and made several concrete recommendations on what the country should do to address our very serious unemployment issues.

Right at the beginning the report hits us in the face with a few statistics highlighted in big text that succinctly capture the job picture in 2011: US jobs have declined by 7 million since December 2007; 20% of men are not working today, up from 7% in 1970; there has been a 23% drop in new business creation since 2007; the jobless recovery is projected to last 60 months; 10% of Americans move annually, down from 20% in 1985.

The very next page uses the same big text format to summarize the very tough challenges the country faces: we need 21 million jobs by 2020 to return to full employment, - that is, to return to the 5% pre-recession unemployment level instead of the current level of over 9%; the job-growth scenarios modeled by McKinsey ranged from 9.3 to 22.5 million, so only their most optimistic high growth scenario gets us back to full employment; in 2020, there will likely be a 1.5 million shortage of college graduates in the workforce; even today, 40% of companies have had job openings for six months that they have not been able to fill due to lack of the proper skills; and 58% of employers said that they will hire more temporary and part-time workers.

“The United States faces an immediate challenge:,” the executive summary starts out saying, “finding employment for 7 million people still out of work from the 2008–09 recession and reviving robust job creation in the decade to come.  But simply employing a nation’s people is not enough. In a globalized, information-age economy, there is no more important economic priority than building a strong workforce.”

Social Reputation in the Age of Globalization

Given my current university affiliations and teaching responsibilities, I spend quite a bit of time thinking how we should best train future leaders to help prepare them for the complex, volatile and unpredictable environments that they must learn to navigate.  Before the Internet brought the world much closer together, change propagated relatively slowly and often became attenuated and lost intensity before reaching other parts of a business and the economies and societies in which it operates.  Not so today.  In our increasingly integrated world, change now propagates much faster, and its impact will often lead to unexpected serious problems that a company’s leaders have to learn to deal with.

My own personal experience has been primarily with the impact of disruptive technologies and innovations on business.  Thus, my seminars and courses have generally focused on the management of technology-based business transformation, the transition to an information-intensive, knowledge-based economy and related areas.  But, beyond my core interests at the intersection of technology, management and complex systems, I have been thinking quite a bit about the central role of trust and reputation now plays, especially for highly visible global companies that are leaders in their industry.

Regardless of how it eventually comes out, the ongoing News Corporation scandal is a real time case study of the importance of trust and reputation to a powerful global company.  As we now know, for the last few years, employees of the British tabloid News of the World have been accused of hacking into the phones of celebrities, politicians and members of the British Royal Family in the pursuit of juicy, exclusive stories.  They have also been accused of bribing members of London’s Metropolitan Police Service. 

Few paid much attention to these allegations.  But then, the scandal went viral seemingly overnight and reached its current critical stage when early in July of 2011 it was revealed that the hacking extended to the phones of ordinary citizens, including a murdered school girl, relatives of deceased British soldiers and victims of the London bombings of July 7, 2005.  These latest revelations resulted in a public outcry in the UK against the News Corporation, its chairman and CEO Rupert Murdoch and other senior executives of the company.

A New Style of Work

About a year ago I wrote a blog on the post retirement phase of my life.  Tom Foremski, a journalist blogger and friend who reports on the business and culture of innovation in Silicon Valley Watcher, wrote an interesting comment in my blog:

“In some ways, I see your post-retirement life as being somewhat futuristic, in that it will be the way many people will be working in the future.  It's what I call an "atomic" model - collaborating with others on specific tasks/projects and then dissolving those collaborations as you work with others on different projects. In some ways, this is the way Hollywood has been working for decades.  And it's also one that I increasingly see in Silicon Valley.”

“It's a model that increases individual productivity and also organizational productivity because you bring in consultants/experts for specific tasks.  Why have them sitting around on salaries in-between projects?”

“You've retired from the old style of working and you are now pioneering the new style of working :)”

Tom himself made such a transition when in 2004 he left his position as the Silicon Valley reporter for the Financial Times to found Silicon Valley Watcher, one of the first journalists to leave a position with a major newspapers to make a living as a journalist blogger.

I have been very intrigued with this new distributed work phase of my career, where I am associated with several institutions instead of one primary one, as was the case when I worked full time at IBM until I retired in May of 2007 after 37 years with the company.  In particular, I have thought a lot about the role of the Web and related technologies as key enablers of such a distributed style of work.  

Fixing the US Jobs Problem

Last week, I wrote about the recent work of Michael Spence, professor of economics at NYU’s Stern School of Business, professor and dean emeritus at the Stanford Graduate School of Business, and the recipient of the 2001 Nobel Prize in economics. 

In The Evolving Structure of the American Economy and the Employment Challenge, which was published in March of this year by the Council on Foreign Relations, Professor Spence and co-author Sandile Hlatshwayo, examined the impact of globalization over the last twenty years.  They divided the economy into two segments: tradable and nontradable.  They then looked at the trends in each segment by analyzing data from 1990 to 2008 from the US Bureau of Labor Statistics and the Bureau of Economic Analysis.  Their analysis uncovered a tale of two very different economies. 

The tradable sector includes those parts of the economy most subject to global competition from foreign companies and suppliers, - e.g., manufacturing, energy, back-office services.  It significantly improved its value added per job or productivity, but had negligible incremental employment, primarily because a growing number of jobs have been moving offshore.  The nontradable sector, which includes those parts of the economy which must be produced and consumed locally, - e.g., government, health care, construction, - had virtually all the job growth during this period but significantly lower value-added.

As they wrote in the Executive Summary, the employment picture does not look good over the next several years, perhaps longer:

“Given the prospect of slowing employment growth in nontradables and rising competitive pressure on tradables, major employment problems in the near future are a certainty.  Even if the nontradable sector is able to continue to absorb the growth in the labor force, pressure on wages and salaries will be downward, and consequences for income distribution unavoidable.”

“To create jobs, contain inequality, and reduce the U.S. current-account deficit, the scope of the export sector will need to expand.  That will mean restoring and creating U.S. competitiveness in an expanded set of activities via heightened investment in human capital, technology, and hard and soft infrastructure. The challenge is how to do it most effectively.”

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.”

Money Doesn't Necessarily Buy Competitive Advantage

Just about every company will tell you that innovation is one of its highest priorities.  How can you tell if the company truly means it, or if it's mostly wishful thinking or marketing hype?  We can see if the company is putting its money where its mouth is by measuring how much it spends on innovation relative to other companies in its industry.  But, this is much easier said than done.  There is no consensus as to which budget line items to include in measuring innovation spending.  So, as often happens, people will try to use a well defined, concrete line item as a proxy for estimating the measurement they are really after.

Research and development is often used as such a proxy for innovation.  Many assume that since both R&D and innovation are supposed to translate into competitive advantage, looking at how much companies spend on R&D equates to how serious they are about innovation.  But, as Michael Schrage, a Research Fellow in MIT’s Center for Digital Business wrote in an FT article in November of 2005:

“Any policymaker, chief executive or innovation champion who relies on R&D intensity and R&D budgets as a meaningful or usable metric to assess global competitiveness virtually guarantees shoddy analysis and distorted decisions.  Few things reveal less about a company's ability to innovate cost-effectively than its R&D budget.  Just ask General Motors.  No company in the world has spent more on R&D over the past 25 years.  Yet, somehow, GM's market share has declined.”

“The simple fact,” he later added, “is that R&D spending - whether in euros, dollars or as a percentage of sales - is an input, not a measure of efficiency, effectiveness or productivity.  Ingenuity, invention and innovation are rarely functions of budgetary investment.”

The New Entrepreneurship: Back to the Roots of the American Dream

The latest figures from the Bureau of Labor Statistics show that the US unemployment rate continues to hover around 9%.  Gallup’s measurements are somewhat higher at 9.2%.  When you add to the unemployment rate the percentage of Americans working part time but wanting full time work, you get an underemployment rate of 19.1%. 

The current period of high unemployment is the longest since the Great Depression.  There have been a number of ups and downs in the economy over the past sixty years.  But while unemployment went up during the down periods, within a relatively short time, the economy improved and the unemployment rates started to go down once, usually below 5%. 

Our current downturn seems fundamentally different from the recessions of past decades.  The continuing high rate of unemployment may well be due to a fundamental restructuring of society as we transition from the industrial economy of the past couple of centuries to an information-based economy.  As a result, many of the jobs lost in the downturn are not coming back as we have known them.

While the overall economy has started to recover, we are actually in a fairly unique situation: a jobless recovery.  Business conditions have significantly improved in the US while unemployment remains high.

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.

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.

The Community Library in Our Emerging Knowledge Economy

In early March, I participated in a presentation and discussion on The Community Library in the 21st Century along with Maxine Bleiweis, the director of the Westport Public Library. 

Libraries have been an integral part of civilization from our earliest history, including ancient Mesopotamia, Egypt, Greece and Rome.  Greek and Roman scholars came to their libraries to discuss issues and learn from each other.

Free, open public libraries were first established in communities across the UK and the US in the second half of the 19th century.  Along with the rise of public schools during the same period, they were an important part of the transition from the agricultural to the emerging industrial economy which required a more literate, better educated work force.  

From the 1880s through the 1920s, almost 1700 public libraries were built in the US, through the philanthropic efforts of industrialist Andrew Carnegie.  His Carnegie Library Grants promoted community libraries for self-education, which was particularly important during a time when the US was absorbing large numbers of immigrants from around the world.

A Time of Institutional Recomposition

There is little question that our economy, our society and just about all our institutions are going through major structural changes mostly caused by the digital technology revolution that has been all around us for the past several decades.  Such technology-based structural changes are not new.  In her 2002 book Technological Revolutions and Financial Capital:  The Dynamics of Bubbles and Golden Ages, scholar and writer Carlota Perez puts our own turbulent times into a clear, historical perspective.

According to Perez, 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.

To better understand the dynamics of a technology revolution, we should split it into two 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 new businesses based on these new technologies, and venture capitalists encourage experimentation with new business models and speculation in new money-making schemes.  Inevitably, this all leads to the kind of financial bubble and crash we are all quite familiar with from our recent experiences.

After the crash, comes the deployment period, the 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 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.”

Sleepovers, Collective Intelligence and Related Subjects

Amy Chua is an American born, ethnic Chinese professor at the Yale Law School.  She recently wrote a book, Battle Hymn of the Tiger Mother about her efforts to give her two daughters a traditional, strict Chinese upbringing.  She also published an article on January 8 in the Wall Street Journal, Why Chinese Mothers are Superior, summarizing her parenting philosophy:

“A lot of people wonder how Chinese parents raise such stereotypically successful kids.  They wonder what these parents do to produce so many math whizzes and music prodigies, what it's like inside the family, and whether they could do it too.  Well, I can tell them, because I've done it.  Here are some things my daughters, Sophia and Louisa, were never allowed to do: attend a sleepover; have a playdate; be in a school play; complain about not being in a school play; watch TV or play computer games; choose their own extracurricular activities; get any grade less than an A; not be the No. 1 student in every subject except gym and drama; play any instrument other than the piano or violin; not play the piano or violin.”

Professor Chua’s book and WSJ article attracted a lot of attention, with people arguing the pros and cons of the demanding Eastern parenting model with its emphasis on achievement, versus the permissive Western model that many would say emphasizes self-esteem instead of actual accomplishments.  Then, on January 17, NY Times columnist David Brooks jumped into the fray with his own take on the controversy in an OpEd with the provocative title: Amy Chua is a Wimp.

Brooks said that he had received many e-mails denouncing Chua’s strict parenting methods.  Her article and book play right into America’s fear of national decline, in particular the fear of being economically left behind by the much harder working Chinese.  But then he writes about Chua:  “I believe she’s coddling her children.  She’s protecting them from the most intellectually demanding activities because she doesn’t understand what’s cognitively difficult and what isn’t.”

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.

Why Is Civil Discourse So Important - Yet So Difficult

In his remarks at the memorial service for the victims of the Tucson shooting, President Obama urged us to be more civil in our dealings with each other:

“The loss of these wonderful people should make every one of us strive to be better.  To be better in our private lives, to be better friends and neighbors and coworkers and parents.  And if, as has been discussed in recent days, their death helps usher in more civility in our public discourse, let us remember it is not because a simple lack of civility caused this tragedy - it did not - but rather because only a more civil and honest public discourse can help us face up to the challenges of our nation in a way that would make them proud.”

Why is civil discourse so difficult?  This is a very important question, dealing with the very essence of being human.  I think of it as a Darwinian-kind of question.  As this provocative Economist article – “Why we are, as we are” - from December of 2008 observed:  “For a Darwinian, life is about two things: survival and reproduction.”

Humans are social animals, and like all such animals, we are ill-equipped to survive on our own.  Our social impulses cause us to naturally gravitate toward forming communities to help us get the necessary survival strengths from each other.  But our evolution - or at least our history - has also channeled these social impulses into forms that are tribal.  That is, we affiliate with our own kind and against the others.

Innovation in an Age of Austerity

On December 7 I participated in an Innovation Summit sponsored by the UK Innovation Research Centre (UK-IRC) at the University of Cambridge.  The UK-IRC is “a collaborative initiative for cutting-edge research and knowledge exchange activities on how innovation can make businesses more competitive, improve public services delivery and help the UK meet the social, environmental and economic challenges it faces.”  It is a joint venture between the Imperial College Business School and the Centre for Business Research in Cambridge.

The topic for this year’s annual Summit was Re-thinking the Impact of Innovation.  Its objective was to assess the economic impact of innovation activities by examining the experiences and best practices in the public and private sector.  Alan Hughes, director of the UK-IRC and professor of enterprise studies in Cambridge’s Judge Business School, gave an introductory address whose title said it all - Re-thinking Impact: Public and Private R&D in an Age of Austerity. 

Given the current economic conditions in the UK, the US and a number of other countries, there is increased pressure to develop effective methods to measure the impact of research and innovation investments on the economy.  He raised a number of critical questions.  How do you best measure such an impact - at an individual project; at a larger group like a lab, department or university; or at the national level?  Will such economic measurements lead to an over-emphasis on some disciplines at the expense of others?  Would it lead to greater pressure to meet short term goals rather than long term objectives?  And, how do you best predict the future impact of disruptive, new ideas?  Four different panels then proceeded to address these challenging questions through the day.

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 US Constitution: A Pantheon of (Sometimes Conflicting) Values

I recently saw a reference to a speech given at Harvard’s commencement in May of this year by David Souter.  Justice Souter served in the US Supreme Court from 1990 until he stepped down in June of 2009.  He was appointed by President George H. W. Bush and was expected to be a conservative-leaning justice, but over time he moved toward the center and was part of the more moderate-liberal wing of the court.

The Harvard commencement address is truly a lesson on why our short and relatively simple US Constitution, drafted more than 200 years ago, continues to be such a powerful document when properly interpreted and applied in our very different and continuously changing society.  I will quote extensively from his speech because I could not possibly come up with words as powerful and eloquent as his, but I urge you to read it here.

In simple language, Justice Souter explains why originalism, textualism and similar legal principles based on using the Constitution only to establish the fair reading or original meaning of its authors without imposing any additional interpretations just plainly do not work.  He directly addresses the “criticism that the court is making up the law, that the court is announcing constitutional rules that cannot be found in the Constitution, and that the court is engaging in activism to extend civil liberties.”

Reflections on the Mood of the Country

The US national mood seems to be going through wild swings every few years, as evidenced by the results of our recent elections.  After the 2004 elections, we were talking about the coming Republican hegemony.  Not only was President George Bush re-elected, but Republicans enjoyed comfortable majorities in both the House (231 - 200) and Senate (55 - 44).  This Republican hegemony lasted but two years, as the Democrats gained control of the House and Senate in 2006.

Then in 2008 we started talking about a whole new hegemony.  Barack Obama became President and the Democrats gained large majorities in the House (257 - 178) and Senate (60 - 40).  Once more, long term predictions turned out to be short lived.  Our just concluded 2010 wave election saw the Republicans re-gain control of the House (239 - 188), as well as gain 6 seats in the Senate and 9 governorships.

What’s going on out there?  According to CNN exit polls, the parties retained their base.  92% of registered Democrats and 95% of Republicans voted for their respective party candidate in the 2010 House races.  The figures were similar in the 2006 and 2008 elections when around 90% voted for House candidates of their own party. 

But when you look at independent voters unaffiliated with either party, the picture is radically different.  These same CNN polls show that in the 2006 House elections, independents voted 57% for Democrats and 39% for Republicans.  In 2010, the figures were just about reversed.  Independents voted 56% for Republican house candidates and 38% for Democrats.  These are really big swings.  Given that independents were more than a quarter of all voters in these elections, it totally explains why the Democrats took the House in 2006 and then lost it in 2010.

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.

Lessons from the Rescue of the Chilean Miners

I first visited Chile about 25 years ago, and have continued to do so from time to time, most recently in September of 2009 when I went to Santiago to join in the celebration of the 80th anniversary of IBM Chile.  I will return in a few weeks to participate in the Smarter Cities meeting that IBM is holding in Santiago on November 23.  Over the years, I have met, worked closely with, and established personal connections with a fair number of people in the country.

This personal connection added an extra dimension to my interest in the rescue of the 33 Chilean miners, although the rescue story has been so compelling that I am not sure anything extra was needed to capture my attention.  Along with a large portion of the world, I was transfixed by the rescue of the miners. Would everything work as planned?  What if something went horribly wrong as we were all watching on live television?  Disaster movies have taught us that just as you become confident and relaxed, things start going haywire.  Would that happen here?

Thankfully, everything went smoothly.  There was indeed a lot of drama, but it was all provided by the emotional reunion of the miners with their families as each reached the surface, as well as by the warm welcome they each received from everyone present, including Chilean president Sebastian Piñera and mining minister Laurence Golborne.  We held our breaths from the time the first miner, Florencio Ávalos started his ascent right before midnight (Chile time) on October 12, to the time the last one reached the surface less that 24 hours later, Luis Alberto Urzúa, their shift supervisor and overall leader.

A lot of the attention is now likely to focus on how the miners and their families deal with their new celebrity status and potential financial rewards.  Everyone agrees that while their fame may be lucrative, it will also be stressful.  There will be lots of opportunities for public appearances, press and TV interviews, and possible book and film deals.  Some will undoubtedly find their new fame too stressful and will yearn for their simpler lives as miners.

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.

The Urgent Need for Innovation in Job Creation

An August 7 New York Times article, Jobless and Staying that Way observed that the current period of high US unemployment - 9.5% percent as of July 2010, more than twice the unemployment rate around the same time three years ago - is the longest since the Great Depression: “Nearly half the 14.6 million unemployed have been out of work for more than six months, a level not seen since the Depression.”

In the past sixty years, we have had a number of ups and downs in the economy.  While unemployment goes up during the down periods, it does not last long.  Within a relatively short time the economy improves and unemployment rates start to go down once more, usually to a rate below 5%.  As a result, the American safety net has been built on the assumption that unemployment would be short term, unlike the more generous safety nets in most European countries, where unemployment is generally higher.

But our current downturn might be fundamentally different from the recessions of recent decades.  In addition to an economic downturn, we may be experiencing a fundamental reshaping of the economy, driven, at least in part, by advances in information technologies, which have led to a resurgence in US labor productivity as well as an increasingly integrated global economy.

IT, Productivity and Organizational Capital

As the US recovers from the financial crisis, economic policies that encourage capital investment and job creation must be our top near-term priorities.  But, to achieve long term economic growth, as well as gains in our standard of living, the US must also focus on innovation and productivity growth. 

US labor productivity - “the amount of goods and services that a laborer produces in a given amount of time” - grew at only 1.5% between 1973 and 1995.  This period of slow productivity coincided with the rapid growth in the use of computers in business, giving rise to the Solow productivity paradox, in reference to Robert Solow's 1987 quip: “You can see the computer age everywhere but in the productivity statistics.”

But, starting in the mid 1990s, US labor productivity surged to over 2.5%.  In an analysis of US labor productivity over the previous fifty years, Harvard economist Dale Jorgenson and his collaborators concluded that “the pessimism of the computer productivity paradox gave way to near-universal belief in a productivity resurgence led by information technology in the late 1990s.”

This IT-based productivity resurgence has continued, except for a short period that reflects the declining IT investment right after the bursting of the dot-com bubble, and the maturing of the global economic expansion in 2005 and 2006.  Even as economic growth has lagged in 2009 and 2010, productivity growth has remained robust.

This productivity growth was led by IT producing companies during the dot-com bubble years of the 1990s, e.g., developers of semiconductors, hardware and software.  But since 2001, the productivity growth has been led by IT-using industries, especially those industries that are intensive users of IT, like retail trade, scientific and technical services and financial services.  Given their fast declining prices, these companies have been able to acquire and deploy significantly more information technologies across all their operations.

In a recently published book, Wired for Innovation: How Information Technology is Reshaping the Economy, Erik Brynjolfsson and Adam Saunders explore the links between the current wave of IT-based business innovation and the productivity resurgence in the U.S. economy.  Erik Brynjolfsson is professor in MIT’s Sloan School of Management and Director of the MIT Center for Digital Business.  Adam Saunders is lecturer at the Wharton School of the University of Pennsylvania, as well as a doctorate candidate at MIT’s Sloan School.

Reflections on the “Post-Retirement” Phase of My Life

In June of 2007, I retired from IBM, where I had worked ever since completing my studies at the University of Chicago in 1970.  A number of friends and colleagues who are themselves contemplating retirement have asked me about my experiences.  So, let me please share what the first three years of my post-retirement life have been like.

I am no longer working full time in any one institution, but I also did not retire in the sense of not working at all.  I am still quite involved in a number of matters related to technology and business, but I am now doing so by working part-time with a few different institutions.  Roughly speaking, two thirds of my work is spent consulting on innovation and technical strategy, primarily with IBM and Citigroup, but now and then with other companies as well.  A quarter of my time is spent with universities, primarily MIT, Imperial College and SUNY’s Levin Institute.  The remaining time is spent in various other activities, including boards and government panels.

After 37 years of working full time for one company, I very much enjoy this new phase which I think of as distributed work, - being associated with several institutions instead of one primary one.  I particularly like the fact that I am now able to spend much more time with universities, in addition to continuing to be involved in business.  At this stage in my life, it feels right for me to have one foot in the private sector and one in academia, while also advising government as appropriate. 

This kind of flexible, distributed work model is one that I believe we will increasingly see, not just in the post-retirement phase of one’s career, as is the case with me, but throughout the careers of many so-called knowledge workers, that is, those “individuals who are valued for their ability to interpret information within a specific subject area,” - in analysis, design, research, strategy and development.

IT in the Age of the Cloud

IT is undergoing its biggest changes since the advent of client/server computing in the 1980s.  These changes are being driven by many factors, chief amongst them the emergence of a different model of computing, - cloud computing.  We are entering the Age of the Cloud.

For the IT industry, a new computing model is a very big deal.  In the fifty years or so since there has been an IT industry, this would be only the third such model, centralized and client-server computing being the two previous ones.  Not surprisingly, there are lots of discussions underway on the implications of this major transition to all aspects of the industry, from the technology and education requirements to the future roles of the corporate IT functions and the CIO position.

I recently came across a very interesting study on The Future of Corporate IT by The Corporate Executive Board, a consulting firm that provides research and analysis to business executives and professionals around the world.

The Executive Board study investigated the five-year outlook for corporate IT.  It interviewed and surveyed hundreds of IT and business leaders.  Its overall conclusion is that fundamental changes, already underway, will take place in how the IT function is organized and managed: 

“The IT function of 2015 will bear little resemblance to its current state.  Many activities will devolve to business units, be consolidated with other central functions such as HR and Finance, or be externally sourced.  Fewer than 25% of employees currently within IT will remain, while CIOs face the choice of expanding to lead a business shared service group, or seeing their position shrink to managing technology delivery . . . This study argues that the changes will be rapid, permanent, and radical.  We have advocated for a decade that IT leaders become demand shapers, not order takers.  Similarly, we now recommend that IT leaders devote the time, energy, and resources to actively shape the coming transition.”

Growing Up in a Complex World

Several weeks ago IBM released its 2010 Global CEO Study.  This is IBM’s fourth and largest CEO study since 2004, based on more than 1,500 face-to-face interviews with CEOs and senior public leaders from more than 60 countries.

I wrote about the CEO study in this recent blog.  The primary challenge emerging out of the CEO conversations was complexity - the fact that CEOs now operate in a world that is substantially more volatile, uncertain and complex.  They feel that incremental changes are no longer sufficient because the world is operating in fundamentally different ways.  The study concluded that Standout organizations - those that have been able to deliver good business results despite the recent economic downturn - feel much more prepared to capitalize on complexity by focusing on three key areas:  embodying creative leadership, reinventing customer relationships and operational dexterity.

On June 14, IBM released a companion to the CEO study, this time focusing on the views of young people, members of what is often referred to as the Millennial Generation or Generation Y.  Inheriting a Complex World: Future Leaders Envision Sharing the Planet invited graduate and undergraduate students to participate in a Web-based survey between October 2009 and January 2010.  More than 3,600 responses were received from students in more than 40 countries.  They were pretty evenly split between undergraduates and graduate students, as well as between emerging and mature markets.  More than two thirds were between 20 and 25 years old.

The 2010 IBM Global CEO Study

IBM recently released the 2010 Global CEO Study.  This is IBM’s fourth biennial CEO study since 2004.  It is also the largest.  For the 2010 study, IBM held more than 1,500 face-to-face interviews with private sector CEOs (80%) and senior public sector leaders (20%) from 33 different industries spread over sixty countries.

In the  past three studies, CEOs consistently said that coping with change was their most pressing challenge. This time around, the primary challenge emerging out of the CEO conversations was pretty clear: complexity.  “CEOs told us they operate in a world that is substantially more volatile, uncertain and complex.  Many shared the view that incremental changes are no longer sufficient in a world that is operating in fundamentally different ways.”

Given the realities of globalization, disruptive innovation, and profound changes across technology, markets and society, it should not be surprising that CEOs and their companies must now navigate a highly volatile and unpredictable business environment.  Nearly 80% of CEOs expect the business environment to grow significantly more complex over time, but less than half believe that their organizations are equipped to deal with it successfully.  This gives rise to what the report refers to as a Complexity Gap, that is, the difference between the expected complexity and the extent to which CEOs feel well prepared to manage it.

Customer-Centric Capitalism

What is the primary responsibility of a business?  Renowned management professor and writer Peter Drucker gave a succinct answer to this question in his 1954 book The Practice of Management:  “A company's primary responsibility is to serve its customers . . . Profit is not the primary goal, but rather an essential condition for the company's continued existence.”

For the last thirty years, maximizing shareholder value has replaced customer value as the key objective of many companies.  But, a number of experts are now raising questions about this widespread business practice and the extreme preoccupation with short term profits that inevitably results from putting shareholders over customers. 

A 2006 study co-sponsored by the Business Roundtable and the CFA Institute  concluded that: “the obsession with short-term results by investors, asset management firms, and corporate managers collectively leads to the unintended consequences of destroying long-term value, which decreases market efficiency, reduces investment returns, and impedes efforts to strengthen corporate governance.”  It is quite possible that this short-term oriented business culture was a leading cause of our global financial crisis.

The issue of shareholder versus customer value was the subject of a recent excellent article in the Harvard Business Review: The Age of Customer Capitalism, written by Roger Martin, dean of the Rotman School of Management at the University of Toronto.

The Power of Pull

Last summer, John Seely Brown (JSB), John Hagel and Lang Davison published the results of a major research project they have been conducting at Deloitte’s Center for the Edge.  The Big Shift, as they called the project, refers to the long-term transformations in the global business environment over the past several decades that have been primarily, but not exclusively, caused by the remarkable advances in digital technologies over that period.

Their research uncovered a number of major, somewhat paradoxical findings.  For example, the return on assets (ROA) of US companies, - a general indicator of profitability, -  has been progressively falling and is now almost one quarter its 1965 levels.  But, labor productivity has been steadily rising, and is now nearly double what it was in 1965.  Where have the benefits of these productivity gains gone?  Certainly not the bottom line of companies which have seen their profitability drop so much during the same period.

To help them make sense of their various findings, the Deloitte research team came up with 25 different metrics which taken together helped them understand the rate and magnitude of the long-term changes they kept uncovering.  The result is The Shift Index, an extensive report that explains each of the 25 metrics, as well as their overall ideas and methodologies.

Now they have turned their attention from analysis to prescription.  What should we be doing to cope with the growing performance pressures being experienced by individuals and institutions?  To answer this question, JSB, Hagel and Davison have written The Power of Pull: how small moves, smartly made, can set big things in motion, which is being published this coming week.

Business Management and Holistic, Critical Thinking

In early January I read an excellent article in the New York Times - Multicultural Business Theory.  At B-School?.  The article was about the efforts of Roger Martin, the dean of the Rotman School of Management at the University of Toronto, to transform business education.

About a decade ago, Professor Martin began advocating “what was then a radical idea in business education: that students needed to learn how to think critically and creatively every bit as much as they needed to learn finance or accounting.  More specifically, they needed to learn how to approach problems from many perspectives and to combine various approaches to find innovative solutions.”

“Learning how to think critically - how to imaginatively frame questions and consider multiple perspectives - has historically been associated with a liberal arts education, not a business school curriculum, so this change represents something of a tectonic shift for business school leaders.  Mr. Martin even describes his goal as a kind of liberal arts M.B.A.  ‘The liberal arts desire,’ he says, is to produce ‘holistic thinkers who think broadly and make these important moral decisions.  I have the same goal.’”

Martin’s ideas may have been radical ten years ago.  “But even before the financial upheaval last year, business executives operating in a fast-changing, global market were beginning to realize the value of managers who could think more nimbly across multiple frameworks, cultures and disciplines.  The financial crisis underscored those concerns - at business schools and in the business world itself.”

The “Professionalization” of Service-based Industries

I spent several days in mid-February at Imperial College in London.  I was a speaker and panel member at an event sponsored by Design London, the multi-disciplinary innovation initiative between the Royal College of Art and the Imperial College engineering and business schools.  The event - The STEM of Service Experience, - focused on the role of Science, Technology, Engineering and Math (STEM) on innovation in services. 

The following day I conducted a seminar on Technology and Innovation in the Service Economy with doctorate candidates in the Business School.  We had very stimulating discussions on the impact of STEM on service-based organizations, in particular, how increased access to information and sophisticated analysis and modeling tools can help managers make better business decisions, especially those concerning highly complex problems. 

One of the students raised the question of whether, as service-based industries have better information and tools at their disposal, we should expect their management to become more professional in the way they make decisions, much as has been the case with engineering as it matured as a discipline over the decades.

It was a very intriguing question that has stayed in my mind since.  What does it mean for a company and its management to be more professional?  How is professionalism related to the scientific and technology underpinnings of the company, as well as to its use of information, analysis and modeling tools?

Disruptive Innovations and Organizational Change

Over the last few years I have given a number of seminars on Technology-based Business Transformation.  In these seminars, I examine how companies can leverage disruptive innovations to go after new business opportunities or to significantly transform themselves.  Often, the transformations are needed because the business is in crisis, such as happened to IBM in the early 1990s or is the case with a number of media companies today. 

The seminars are generally organized into three section.  The first two focus on strategy formulation and execution respectively.  The last section deals with the organizational and cultural issues involved in going through such a major transformation.

Many companies fail to adequately embrace a disruptive innovation not because they did not develop the right strategy, but because the strategy was essentially rejected by the organization, and was thus doomed to fail from its very beginning.  The culture of the institution was not able to stretch enough to be able to implement the needed changes.  This happens even when the very survival of the organization is at stake.  It is as if a kind of institutional depression has set in.  

We sometimes forget that disruptive innovations are indeed disruptive, not only in the marketplace but also for individuals and organizations.  Much as we often talk about embracing change as a positive experience, change is in fact very difficult, even painful for many people.  You are asking them to move into unknown, perhaps even unchartered territory.  What will be the impact on their jobs?  Do they have the required skills for whatever is ahead?  How well will they personally do in the new environment?

JumpStart NYC: Talent in Transition

As we well know, many talented people have lost their jobs as a result of our ongoing Great Recession, - the worst financial crisis we have lived through since the 1930s.  The US unemployment rate has doubled from 5% in December of 2007 to 10% in December of 2009.  The number is significantly higher, about one out of every six workers, when taking into account underemployed and discouraged workers who have had no success in finding a full time position.

Hopefully, the economy will soon improve and unemployment rates will start to come down.  But in the meantime, it is very important to offer those who got laid off as a result of the deteriorating economy as much help as possible in exploring and finding job opportunities.

In New York City, the crisis hit hardest in the financial services sector.  There are now over four hundred thousand unemployed city residents, many of them as a result of layoffs on Wall Street.  About a year ago, the Bloomberg administration launched a number of programs to help recently unemployed city residents.  JumpStart NYC is one such program.

The JumpStart program was initiated by the New York City Economic Development Corporation (NYCEDC).  Its key objective was to help people who lost their jobs on Wall street to apply their skills and abilities in opportunities beyond financial services.  Most of these people had previously worked for large firms.  A primary goal of JumpStart was to help them explore new career paths and opportunities in small and entrepreneurial firms in the New York area.