Strategy. Innovation. Brand.
Worried About the Euro? Try Bitcoin.
Got any bitcoins?
With the serial crises in the Euro zone, one has to wonder if the currency will survive. If it doesn’t, one assumes that individual countries will return to their national currencies: the drachma, lira, peseta, etc. But do they have to? Who says that a currency has to be sponsored by a national government?
That’s part of the theory behind Bitcoin, the most successful virtual currency in history. Bitcoins exist as highly encrypted computer transactions. The currency was created in 2009 by an extremely talented programmer (or programmers) using the pseudonym Satoshi Nakamoto. Roughly 31,000 lines of very tightly written code generate 2½ bitcoins per minute. (The rate will vary over time until 21 million bitcoins are produced). Bitcoin enthusiasts use high-powered servers to “mine” the bitcoins; they usually sell them on exchanges like Mt. Gox. The system uses the same servers to track transactions and ensure that no one person can spend the same bitcoin twice.
The bitcoin system uses peer-to-peer networking, meaning that there’s no central office or person or committee responsible for managing operations. That also means there’s no one to arrest if national authorities decide that the operation is illegal (which, so far, they haven’t). As Nakamoto pointed out in an early manifesto, today’s fiat currencies require us to trust national governments and central banks, which seem to regularly abuse that trust. The bitcoin, on the other hand, is based on “crypto proof instead of trust.” If you trust cryptography more than you trust central banks, the bitcoin is for you.
Bitcoins have all the advantages of cash, including anonymity. They also remove most of the disadvantages of cash: you can’t lose them, they (apparently) can’t be stolen, and they’re not bulky and hard to transfer. Because there’s no middle man, transaction costs are also very low. Anonymity and ease-of-use appeal to three significant demographics: libertarians, criminals, and those who predict the collapse of national currencies.
The never-ending euro crisis has driven bitcoins to new heights of popularity. There are now roughly 10.5 million bitcoins in circulation. Like a commodity, their price is governed by supply-and-demand. Since the Cyprus crisis erupted, their value has nearly tripled and they recently sold for about $105 each — meaning that the total value of bitcoins in circulation is now over $1 billion.
Their popularity has expanded in other ways as well. Search for “bitcoin” on Amazon and you’ll find 54 different publications. There’s also a magazine, which has a good overview article (complete with common misconceptions). Canada is even experimenting with a virtual currency called the MintChip which may have many of the features of Bitcoin but with the backing of a national government. The hype is accelerating and, as Andrew Leonard points out in Salon, that may be the beginning the end. Because of its growing popularity, the Feds are now starting to pay attention.
The best introduction to bitcoins is probably Joshua Davis’ article in The New Yorker in October 2011. Davis provides a very good layman’s summary of bitcoin operations and also attempts to track down Satoshi Nakamoto. In an article in Fast Company, Adam Penenberg, also tries to identify Nakamoto and comes up with a trio of possibilities — not the same suspects that Davis identifies.
It’s fun to speculate where all this might lead. So far, I haven’t bought any bitcoins. The value has gone up so much in recent months that it seems like a bubble. I am curious, however, if any of my readers have bought and spent bitcoins. If so, be sure to let us know about your experiences.
Platforms, Solutions, and Aggies
Typical land-grant graduate.
My father, who was the first in our family to go to college, went to a land-grant university (Texas A&M). My sister went to a land-grant university (Clemson). I went to a land-grant university (Delaware). My wife went to a land-grant university (Purdue). My wife’s parents went to a land-grant university. (Wisconsin)
Abraham Lincoln set up the land-grant system through the Morrill Act of 1862. The federal government granted land to each state. The state used the land to set up a college to teach the practical arts, including agriculture, engineering, and military science.
The system worked. Land-grant colleges became social elevators that allowed lower-and middle-class kids to pursue higher education affordably. They also became engines of innovation, fueling an innovation boom that catapulted the United Sates to leadership positions in multiple industries in the late 19th century. We’re still riding the echo of that boom. I’ve often wondered about the return on the land-grant investment. The economic value created by the system must be orders of magnitude higher than the original cost.
The genius of the system is that it’s a platform, not a solution. For instance, Lincoln didn’t identify the inefficient harvesting of cotton as a national problem and jump to the conclusion that the government should invest in the cotton gin. Instead, he created a platform that allowed many people to pursue an education, investigate problems, and develop solutions on their own.
I bring this up because we seem confused about what role the government should play in stimulating innovation. I hear it in my IT/innovation classes all the time. Some students argue that government should get out of the way and let private industry solve every problem “efficiently”. Others argue that government should have a role but they have a difficult time describing it.
Ultimately, I think it’s fairly simple. The government should invest in platforms, not solutions. The land-grant system allowed millions of people — including me — to take something from America and then turn around and make something for America. (It’s not true that we’re either makers or takers. We’re usually both.)
In the recent past, the best example of platforms that stimulate innovation are probably the Internet and the human genome project. The massive brain mapping project — the Human Connectome — that President Obama recently announced could become the next great platform. On the other hand, the government investment in the solar panel manufacturer, Solyndra, was solution picking rather than platform building. It didn’t work so well.
So, I’m all for government investment in platforms that can stimulate innovation. By the way, I don’t claim that this is an original idea of mine. Steven Johnson makes much the same point in his book, Where Good Ideas Come From. But I do think it’s an idea that needs to be popularized. That’s why I’m writing about it. I hope you will, too. In the meantime, I’ll give credit where it’s due by saying, “Thank you Mr. Lincoln for helping my family get an education.”
Virtual Prisons
Nice prison you’ve got there.
The USA locks up more citizens proportionally than any other country in the world. For every 100,000 people, we have 716 in jail. We’re followed closely by countries like Rwanda (527), Georgia (514), Cuba (510), and Russia (502). Nice company. At the other end of the spectrum we see those pesky Nordic countries again: Denmark (74), Norway (73), Sweden (70), Finland (59), and Iceland (47). (For a list of incarceration rates in 220 countries, click here).
We might think of this as an economic and technical problem. Prisons aren’t very efficient at converting criminals into model citizens. It costs a lot to keep so many people in jail and the recidivism rate is high. This can’t be helping us to balance the budget. So, the question becomes: are there more efficient, less costly ways to keep so many people off the streets?
As Evgeny Morozov points out in a recent article, this is exactly the way the consulting firm, Deloitte, framed the question in its recent report on virtual incarceration. The idea is simple: use technology to increase efficiency. By combining mobile phones with GPS and video cameras, we can lock up low-risk perps in their own homes. It’s less costly and certainly more efficient than current jails. If it can break the role of jails as the higher education centers of crime, it may also be more effective.
But Morozov asks a different question: is that really the problem we want to solve? Wouldn’t it be better to find solutions that would lower the incarceration rate? I’ve written a lot about disruptive innovations (and been the victim of a few), but Morozov writes that, “Smart technologies are not just disruptive; they can also preserve the status quo. Revolutionary in theory, they are often reactionary in practice.” Efficient incarceration is a good example. We’re not changing the fundamentals — we’re just making it easier, cheaper, more efficient to do the same old stuff.
I’ve always been a technical enthusiast. I remember reading Malthus in college. He wrote (in 1798) that, sooner or later, we would run out of resources to support a growing population. Society is improvable only up to a point; it’s certainly not perfectible. I essentially rejected the idea, assuming that technology would always stay a step ahead. If Malthus’ prediction hadn’t come true in 200 years, I thought we could safely ignore it.
Morozov is making a subtler point, however. It’s not just about resources. It’s also about our attitude and our ability to frame questions effectively. As he writes, “That we now have the means to make the most miserable experiences more tolerable should not be an excuse not to reduce the misery of those experiences.”
I think an increasing number of Americans is growing increasingly concerned about the number of people we lock up. We may be building a consensus for change. If we make incarceration less costly and more efficient, we may just undercut that consensus. Is that really what we want?
If Morozov is right, we may have to re-phrase Karl Marx’s classic aphorism. Reigion isn’t the opium of the people. Technology is.
(By the way, Morozov has also written a terrific book, To Save Everything Click Here: The Folly of Technological Solutionism, which I’ll write about soon).
Innovation: Loosen Up, Tighten Up
Loosen up, dudes!
I’ve written a lot about innovation but have yet to properly introduce Rosabeth Moss Kanter, one of our leading thinkers in innovation and change management. A professor at Harvard Business School, Kanter has written a string of books on innovation, incuding some of my favorites: Confidence: How Winning Streaks and Losing Streaks Begin and End and SuperCorp: How Vanguard Companies Create Innovation, Profit, Growth, and Social Good.
Today, I’d like to draw on concepts from one of Kanter’s articles in Harvard Business Review, “Innovation: The Classic Traps“. Kanter surveys a number of different traps but two, in particular, caught my attention, mainly because I’ve seen them myself.
The first is called controls too tight. All too often, companies use traditional metrics to judge the impact of non-traditional innovations. The problem is that traditional metrics — such as hurdle rates, ROI, or NPV — all require some type of track record to produce results that might be considered reliable.
The problem, of course, is that a truly innovative product has no track record. Kanter writes that companies often fall prey “… to the impulse to strangle innovation with tight controls — the same planning budgeting and reviews applied to existing businesses.” Kanter writes that the solution is to loosen up and add flexibility to your planning and control processes. This may include innovation funds and judicious exemptions for corporate requirements and timetables. Going a bit farther afield, you might also incorporate new financial metrics like real options analysis.
The second trap might be called connections too loose. The idea is that companies often isolate innovative new products and processes in organizational units that are physically and/or culturally isolated from the mainstream. Kanter points out that GM’s Saturn brand was established as a separate unit to pioneer new ways to design, build, and market midsize cars. While Saturn itself was innovative, the innovations didn’t have much impact on the rest of GM.
The same trap can affect established units as well. Kanter points out that CBS was once the largest broadcaster in the world and also owned the largest record company in the world. But MTV, not CBS, invented the music video. Kanter also writes that “… Gillette had a toothbrush unit (Oral B), an appliance unit (Braun), and a battery unit (Duracell) but lagged in introducing a battery powered toothbrush.”
Again, I think we can go a bit farther afield and identify similar disconnects among departments within a company. Engineering designs a product and then turns it over to manufacturing. That’s often a loose connection. If manufacturing experts participated in the design process (as they do at Apple), you might get products that are not only well designed but also easy to manufacture.
What to do? Kanter writes that “… companies should tighten the human connections between those pursuing innovation efforts and others throughout the rest of the business.” This requires good leadership, good communication skills, and a willingness to “convene discussions to encourage mutual respect rather than tensions and antagonism.” It may also require good architecture as in the example of Steelcase, which built ” a design enter that would force people to bump into one another….” (This is one of the reasons I think Marissa Mayer at Yahoo! is right to require people to work at the office).
So how do you stimulate innovation? While it’s not easy, a good first step is to loosen up you processes while tightening up your people-to-people connections.
Marissa Mayer — You Go, Girl!
Marissa Mayer, the new Mom who is also the CEO of Yahoo!, recently announced that all Yahoos (that’s what they call employees) have to work at the office, not from home. Since then, the blogosphere has been all aflutter. A majority of the bloggers I’ve read suggest that Mayer is retrograde, dumb, and sexist. I have to disagree. I think it’s a very smart move and about time, too.
The arguments against Mayer’s decision have to do with productivity, convenience, women’s rights, and maybe even clean air. Stephen Dubner (one of the two Steves who created Freakonomics) wrote that an experiment at a Chinese travel agency shows that woking at home can increase your productivity and reduce health problems. Apparently long commutes raise your blood pressure. A recent article from Stanford (based on the same Chinese study) suggests that the productivity of those working at home is 13% greater than those working at the office. An article on WAHM.com (Work At Home Moms) argues that telecommuting shifts the employee’s emphasis away from politics and towards performance. Months ago, Slate wrote that Mayer doesn’t care about sexism. Grindstone calls Mayer’s decision a “morale killer” and a “giant leap backward for womankind.” The Atlantic Monthly flatly declares that “Marissa Mayer Is Wrong”.
But is she wrong? It depends on what she’s trying to do. Raising productivity is generally a good idea. But if the price of productivity is reduced innovation, then the cost is too high. There’s a strong case to be made that working from home — while it provides many benefits — inhibits innovation. I’ve written about the mashup nature of innovation. Many of the best new ideas are mashups of existing ideas.
The same logic applies to people. Getting people together — and encouraging them to mix and mingle in more-or-less random ways — helps them mash up concepts and create new ideas. It’s why Building 20 — a ramshackle, “temporary” structure on the MIT campus — generated so many innovations. People bumped into each other and shared ideas and, in doing so, created everything from generative grammar to Bose acoustics. It’s why cities produce a disproportionate share of of inventions and patents (click here and here). It’s why reducing the number of bathrooms in a building will increase innovation –you’re more likely to bump into someone. It’s why I advise my clients to allow e-mail to flow freely between buildings but to banish it within a building. If you’re in the same building as the recipient, get together for a face-to-face meeting. You’ll get more out of it — maybe even an innovative new product.
So, what is Mayer trying to accomplish? In her memo to all Yahoos, she speaks of “communication and collaboration” and notes that “Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings.” She doesn’t use the word “innovation” but that’s exactly what she’s talking about. And, in my humble opinion, Yahoo! could use a healthy dose of innovation. So I think Mayer has got it right: PPPI — proximity and propinquity propel innovation. All I can say is: you go, girl!
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