Category Archives: The thoughtful manager

Buffeting

The Snowball: Warren Buffett and the Business of LifeThe Snowball: Warren Buffett and the Business of Life by Alice Schroeder

Rating: 5 of 5 stars ( Goodreads review)

To succeed in business, be patient, look for value, be honest, and have cash in hand. And don’t think about anything else. In fact, be an unrepentent monomaniac. Warren Buffett has become the worlds richest man by making investments that he gets derided for at 10-year intervals, then, when the bubble bursts, he is a saint again…. Buffett is extremely good at making money – and has a rather impressive idea about what to do with it (keep investing, give it all away to someone who is good at giving away money, such as Bill Gates.)

The biography is an impressive work in itself. 838 densely written pages about a man whose personal life has been rather unspectacular (hamburgers and Cherry Coke, poring over stock lists and annual reports). Schroeder is a business writer and financial analyst, so she has real knowledge about deals and can write with authority on complicated cases such as Salomon Brothers. I would have loved to see her write a biography on Bill Gates with the same level of business detail, though we will probably have to wait another decade or so for that to happen.

(Incidentally, I once heard Buffett speak, at the Harvard Business School in, I think, 1991. He was asked about what he thought of the derivatives market, which was beginning to take off at that point, and said that if he was alone on a deserted island with 100 people and the only sustenance was rice, he wouldn’t have put 50 of them to work peddling rice futures….)

Recommended for the budding investor – and as a backgrounder on the financial crisis. It is up to date as of April 2008, which is rather impressive in itself.

View all my Goodreads reviews.

Ozzie and the cloud

Steven Levy, a tech writer whose every article I read if I can get my hands on it, has a fascinating Wired article about Ray Ozzie and his long march to make Microsoft survive and prosper in the cloud. Service-based computing can be a disruptive innovation for Microsoft, since customers become less reliant on a single, fat client (dominated by MS) and instead can use a  browser as their main interface.

I have used Lotus Notes since well before the company was bought by IBM, and always considered it to be a fantastic platform that is somewhat underused, chiefly because while its execution is great, the user interface is somewhat clumsy (getting better, but still) and it is hard to program for. As an infrastructure play for a large corporation, Notes is just great. As a platform for software innovation and innovative interaction, it leaves a lot to be desired. The question is – can Microsoft gain dominance in this market (Sharepoint seems to execute on that one), extend it to consumers (Vista is not a good omen here), and somehow find a business model that works? (By that I don’t mean one with it the same profitability as it has now, that just isn’t possible. But one that is somewhat profitable long-term?)

If anyone is going to be able to pull that off, it will be Ozzie. The article paints, as I see it, a very complete picture and tells me a lot more about the relationship between Microsoft and Ozzie than I knew. But that is usual with Steven Levy articles, ever since he wrote "Hackers: Heroes of the Computer Revolution" back in 1984.

Highly recommended. (And since I like long and detailed articles: this one is at 6900 words or more than 40,000 characters including spaces. Just a hint to my Norwegian newspaper friends, who thinks anything more than 7000 chars won’t be read by anyone.)

The oil rule: Whoever has the oil makes the rules

Tom Friedman, in his new book Hot, Flat, and Crowded, makes a pretty powerful argument that the US’s addiction to oil helps finance fundamentalist Islam and represses democracy. The main point: Having oil means dictators can finance repressive institutions (police etc.) and bribe the populace into apathy.

Here is a graphical telling of the same story:

World oil reserves chart

Looks pretty persuasive to me. Tom Friedman argued for a "patriotic" gas tax in the US back in 2001. Seems as good an idea now as it was then. (Chart from Daily Galaxy, via Jon Udell)

Tom also says that no country with more than 50% of its income from oil is a democracy. I am not totally sure of the numbers here, but I wouldn’t call Norway undemocratic. Update, thanks to Twit from mgjosefsen: Norwegian exports of oil and natural gas was 52% of total Norwegian exports in 2005. Share of GNP was about 25 %. We seem to be an exception, in other words.

Jazzcode

 Jazzcode is a concert/presentation held by Carl Størmer and a jazz band, typically put together for each venue. Carl, who has been traveling around the world with this presentation and has written a case about Miles Davis for the Harvard Business School, explains how jazz musicians are able to come together and play without having played together or even met before,  largely because they listen to each other, have shared references, and adhere to a pretty strict pattern in how they play through a piece. Carl, very effectively, uses the metaphor of a jazz band to illustrate certain principles and requirements for collaboration in teams.

Today I had the great fortune of attending a private JazzCode concert in Oslo, the band consisting of Carl (drums), Georg "Jojje" Wadenius (guitar), Rob Waring (vibraphone) and Edvard Askeland (base). Though I suspect this concert was heavier on the music and lighter on the management thinking – half the audience was volunteers of the Oslo Jazz Festival – I can easily see how this approach can be both an entertaining and instructing part of a company retreat or meeting.

I saw the show with my father-in-law, Ludvig Mathiesen, who in addition to everything else was Norwegian Champion of Amateur Jazz in 1956, playing the piano. For me it was an introduction to jazz – and that, I suppose, is the added benefit of having JazzCode at your event: A helping of culture with the managerial pointers.

Highly recommended.

Practicing what you preach (The business school edition)

I am a board member of Masterstudies.com (prior description here) a startup company that offers a recruitment service for universities, primarily those offering master programs in business or related fields. The company now has a number of universities and business schools signed up, and we have begun to  learn something about the market that we (or, at least, I) did not know before, even though I have worked for a large, private business school for many years.

The thing is, it seems (many) business schools do not practice what they preach – i.e., many of them fail to apply some rather basic strategies, sales practices and web practices. Here are a few observations I have made so far:

1. Business schools say they differentiate, but they don’t

The classic. Porteresque view of competitive strategy says that there are only three generic strategies you can apply: Cost leadership, differentiation (i.e., being unique in some way), or segmentation (i.e., addressing specific sub-markets based on attributes of the customer). The latter, of course, is merely a more granular and partially combined version of the two first ones. Even though business schools should know competitive strategy well (it is, after all, one of their most important subjects), most of them do not pursue any one of these strategies. Or, rather, they say that they pursue a differentiation strategy but don’t. In that sense, they are neither strategic nor different.

The test for whether you have a strategy that truly is strategic is that you have chosen not to do something that you could have done. The test for whether you are differentiated is whether you can take away the school name (and things the school cannot change easily, such as nationality and location) from its description and then see whether you can determine which school it is based on its marketing material.

The reason I say this is that I have played around with the course and school descriptions found in our database, and been struck by how similar they look. Do the test yourself – go into the Masterstudies database, look up a few schools, and ask yourself: Which student segments are this school deliberately not trying to get – and what part of its offering is sufficiently different that you can see to what extent they are doing this in practice or just in Powerpoint.

Most of them are looking for the future leaders who see the challenges of  globalization, new technology and a constantly changing marketplace as opportunity to employ innovative strategies to build flexible learning companies that create value for their customers, shareholders and employees while displaying a sense of diversity and social responsibility. Hmmmm…. I wonder how large that segment really is – and to what extent the school really can serve this mythological student once he or she shows up?

The net result, of course, is a power law distribution of interest, with about 10 schools, the Harvards and Stanfords and MITs and Kelloggs of the world, getting all the attention; a near-first tier that is deadly afraid of doing something that the best schools do not, lest they be criticized for it; and a medium body and eventually long tail of schools that really do some differentiation but dare not talk about what it really consists of – for instance, explicitly targeting those who did not make it into the first tier schools but still are good students.

2. Business schools talk about market analysis, but many don’t do it well, or at all

Recruiting a student of sufficient quality and interest is a complicated process: You have to create enough awareness so you get enough applications so you can send out enough qualified to get enough accepts. To do this, you have to track

a) the number of leads (expressions of interests) you get

b) how many who actually send in an application (conversion rate)

c) how many of these are qualified and will get an offer (acceptance rate)

d) how many who accept the offer when they get it (yield)

My thoughts were that every Dean of Admission in the world eagerly tracked these numbers (they are, after all, also pretty good for measuring the level of effort of the sales team) but no, there are some indications that a number of schools, in fact, do not even know them. Depending on where in the distribution of schools you are, you ought to track different numbers: If you are top-ten, you track yield rate; if you are new, you track earlier in the process. (Incidentally, what Masterstudies offer is a filtered version of the first one, where schools can set up criteria for what kind of leads they want, thereby filtering out the clearly unqualified and enable some geographical or gender balancing – the difference between carpet-bombing and surgical strikes, as it were).

These numbers are not hard to get, but fewer schools than I thought actively manage them. (Not that I have formal statistics or would share them if I had them.).

Schools differ widely in their attitude to prospective students as well. We tested the response rate of schools and found that it varied widely – some schools did not respond at all, whereas some schools were on the phone with our prospective students in less than 30 minutes. That makes a difference as to whether the students will send in an application or not. (And no, there was no quality difference between these schools in terms of rankings and so on – we could not detect any pattern at all.)

3. Business schools know little about why they don’t get the students they want

There is a classical study by Abraham Wald of the location of bullet holes in bomb planes to find out where to add armor. Wald looked at where the airplanes were shot up and then concluded (not in the referenced paper, though) that more armor should be in the places with no bullet holes. The reason was simple enough: The planes that returned were the survivors, with bullet holes in places that could take the damage.

I wonder if not some of the same bias comes through with business schools. I wonder how many of them systematically interview or otherwise try to elicit responses from those students that did not chose their offering – at any point in the process. There are some schools that are clever – for instance, one school makes sure that the lack of a GMAT is not a hindrance to start studying if your grades and other academic performance indicators are good, by allowing the student to start and having time and resources set aside for GMAT certification. But I wonder how many take the time to find out whether it is lack of awareness, interest, timing, geography, content, structure, reputation or finance that makes promising student choose a different school. For those that interview candidates, I assume some of this comes out in discussions, but I have my doubts as to how well defined and executed these processes are.

I also have a sneaking suspicion that many students choose a business school for more mundane reasons that they tell school officials. It sounds better to say you chose this particular program because you like its specific focus on subjects or teaching philosophy (differentiation again – see point 1 above) than because the school is conveniently situated or your friends go there.

4. Business Schools make their web sites viewable, but not findable

Findability refers to the degree to which your web site or specific page can be found  by a search engine. As search technology more and more becomes the preferred interface to information, having a findable web site becomes very important. But more and more schools are finding that when you Google their specific master programs, the description of the the program found at Masterstudies.com comes up higher than their own description.

This is because schools spend a lot of money creating nice-looking web sites, but not much on making them findable. I think this is because the school has an understanding of how to create nice exclusive-looking brochures, but don’t know much about search engine optimization. The visual design of a site is outsourced to an ad agency, and the maintenance of it done through some content management package that does not use descriptive directory and file names, instead hiding new and interesting programs behind cryptic URLs. Perhaps each business school thinks their brand equity is so strong that students will know about them and come in the front door (i.e., the home page) like they used to do 10 years ago?

I have always wondered why business school web sites are done in such an overadministered and cumbersome fashion – for instance, few business schools set up ways for faculty to have blogs, instead requiring them to have official-looking web pages that are pain to maintain and leaving blogging to those who either set up their own blog outside school premises or have the technical gumption and political power to install the software on school infrastructure themselves. There are simple and cheap solutions around – Drupal, for instance – that allow descriptive directories and simple, shared content management. And when it comes to content – why not just use Movable Type or WordPress and the underlying software for faculty and other writers? In that way, the content would be plugged into what is beginning to look like the Semantic Web almost by default.

Conclusion

Given that I am on the Board of a company that tries to help business schools recruit internationally, I personally think this is just swell: Lots of business extension possibilities for us. But there is low-hanging fruit here: Simple, effective strategies and practices that business schools ought to execute on, with or without our help.

As marketing and recruiting increasingly goes on line (and, after that, into communities such as LinkedIn and Facebook), business schools will have to understand and change their marketing to make themselves much more differentiated and findable. In the meantime, there is room for first (or, rather, fast second) movers.

May your school be one of them.

Tim O’Reilly nails it on cloud computing

In this long and very interesting post, Tim O’Reilly divides cloud computing into three types: Utility, platform and end-user applications, and underscores that network effects rather than cost advantages will be what drives economics in this area. (This in contrast to the Economist’s piece this week, which places relatively little emphasis on this, instead talking about the simplification of corporate data centers – though the Economist piece is focused on corporate IT.)

Network effects happen when having new users on a platform or service are a benefit to the other users. This benefit can come from platform integration – for instance, if we both share the same service we can do things within that service that may not be possible between services, due to differences in implementation or lack of translating standards.

Another benefit comes when the shared service can leverage individual users’ activities. Google’s Gmail, for instance, has a wonderful spam filter, which is very reliable because it tracks millions of users’ selections on what is spam and what isn’t.

Tim focuses on the network effects of developers, which is an important reason why Microsoft, not Apple, won the microcomputer war. When Steve Ballmer jumped around shouting "developers, developers, developers", he was demonstrating a sound understanding of what made his business take off – and was willing to make a fool of himself to prove it.

Tim also invokes Clay Christensen’s "law of conservation of attractive profits", arguing that as software becomes commoditized, opportunities for profits will spring up in adjacent markets. In other words, someone (Jeff Bezos? Larry and Sergei?) need to start jumping up and down, shouting "mashupers, mashupers, mashupers" or perhaps "interactors, interactors, interactors" and, more importantly, provide a business model for those that build value-added services on top of the widely shared platforms and easily available applications they provide.

One way to do that could be to make available some of the data generated by user activities, which today most of these companies keep closely to themselves.  That will require balancing on a sharp edge between providing useful data, taking care of user privacy, and not giving away your profitability too much. As my colleague Øystein Fjeldstad and I wrote in an article a few years ago – the companies playing in this field will have to make some hard decisions between growing the pie and securing the biggest piece for themselves.

If we cannot harness network effects, cloud computing becomes a cost play, and after awhile about as interesting, in terms of technical evolution, as utilities are now. USA is behind Europe and Asia in mobile phone systems partially because US cellphone companies were late in developing advanced interconnect and roaming agreements, instead trying to herd customers into their own network. Let’s hope the cloud computing companies have learned something from this….

The Economist on cloud computing

The Economist has a nice feature on corporate IT, mostly about how it is evolving towards cloud computing. Like everything the Econonomist does, it is nicely worded, measuredly opinionated, and contains nothing new to those in the know. But the article is a very good introduction to the current state of at least the technical and market side of corporate IT provisioning, so I mark it for future courses on just that topic. It includes an audio interview with Ludwig Siegeler as well.

Airport insecurity

I am thinking a lot about security now, since a discussion last week on security in the 2.0 Enterprise – where the conclusion was that we need to get away from perimeter security and over towards something asset-based, i.e. securing what really matters and not faking security by having showy and inconvenient moats and drawbridges.

This funny but deeply serious article in The Atlantic takes on the example of airport security with all its symbols and holes. As Bruce Schneier (a real security expert) repeatedly has pointed out, hijackers can no longer get into the cockpit. Furthermore, passengers would attack hijackers on sight, rather than cooperate with them. Hence, the bluff that got the 9/11 hijackers in control of four airplanes will no longer work.

But we persist in implementing security that does little but increase the cost of flying, inconveniencing everyone, and, ironically, making flying (or, at least, turning up at the airport) less secure. As the article points out, the most dangerous place in the airport is where many people are waiting closely together in an unsecured area. In other words, in the security control line, perfect in case somebody wants to repeat the Lod airport massacre.

And now for the good news…

I don’t, as a rule, read the HBS Alumni Magazine too closely, but here is an interesting perspective on the decline of the newspaper industry from Roben Farzad, MBA ’05  and business journalist, who paints a bleak picture of the newspaper industry, declining in revenues and importance as the barbarians digitally storm in with their click-counters and lack of respect for the sanctity of the fourth estate and its industrious acolytes. There is little hope, he says, as the fundamentals of the industry are disappearing so fast that not even patient money taking over to run newspapers as museums would help much.

I would like to point Roben to the case, developed after he finished HBS, of Schibsted ASA, a Norwegian media company that, so far, is one of the few media houses that successfully has managed the transition to the web. As one executive at monster.com said to me recently: We dominate everywhere in Europe, except Norway and Spain, where Schibsted dominate. Schibsted was early onto the Internet, and managed to have a long term view (15 years) on their investments and the luck of selling out a few of their early investments before the dot-com boom, so that their portfolio did not look totally hopeless even in 2002. It helps, of course, that its top management (particularly Kjell Aamot) was convinced, very early, that the Internet was here to stay and fundamentally would change the newspaper business.

Now, their Internet revenues exceed those from their newspapers (partially because they dominate classifieds in Norway with finn.no), more people get their news from their web sites than from their (large) newspapers. VG.no, the largest news web site, gets half as many hits as Nytimes.com (and we are less than 5m people here in Norway). VG.no breaks every rule of good web design and, precisely because of that (according to Torry Pedersen, its editor) encourages browsing. Incidentally, Torry recently became editor of both the web site and the newspaper (which, at some point in the not-too-distant future, may become free).

And yes, they have different journalists working on the net and the paper. Only 10% of the material is cross-posted, because Torry wants it that way. No mixing – these are different media and need different kinds of people.

Schibsted is by no means out of the woods yet – but they have a far better chance than any other media group I know of. I think they should focus more on their considerable capability in search technology to create more targeted and specialized, "automated" web sites, as well as get their hand more firmly in search-based advertising. And there is still work to do on integration of their activities across their various media outlets. But Schibsted did something while the rest of the media industry (and most of its journalists) lamented the coming of this vulgarity called the Internet. And that is the beauty and the fear of disruptive technologies – that by the time you understand their impact, it is too late for the majority of companies. And those who work there.

The funny thing is, if you ask journalism students, the majority of them want to work for paper papers, not this vulgar web thing, where you have to publish right away, write quickly, and instantly know whether you are being read or not. A paper journalist files one item per day. A web journalist, according to figures floating around among journalists here in Oslo, posts, on average, six.

I recently heard an anecdote about a rock singer who no longer can make money selling records, so he had to do many more concerts to maintain his income. That forced him to lay of cocaine, since he now had to go to work much more often.

A few years ago, the Oslo press club had to close for lack of customers. Presumably, they were at work. What a loss….

Computers + Biology = Virus Detector

This is the kind of read that makes you proud to be even remotely connected to computers, science and academia…..

Security, privacy and IP in the 2.0 Enterprise

(bear over with me here for a while, this is something I am mulling over in relation to an nGenera research project called REC – Reinventing End-user Computing.) I am doing a teleconference on security, privacy and IP later today with Kimberly Hatch and other colleagues at nGenera and need to bloviate a bit to get in the mood.)

Continue reading →

The maladjusted and marginalized terrorist

Bruce Schneier, security guru extraordinaire, has a cracking good article on what motivates terrorists in Wired: The Seven Habits of Highly Ineffective Terrorists, much of it drawn on a paper by Max Abrahms called What Terrorists Really Want.)

The main argument is that terrorists "turn to terrorism for social solidarity", i.e., that they join terror organizations less for political aims and more because they themselves are alienated and outcasts in search for belonging and, perhaps, as an outlet for violent or authoritarian tendencies. They are loners in search of meaning rather than radicals in search a way to express their political views:

Individual terrorists often have no prior involvement with a group’s political agenda, and often join multiple terrorist groups with incompatible platforms. Individuals who join terrorist groups are frequently not oppressed in any way, and often can’t describe the political goals of their organizations. People who join terrorist groups most often have friends or relatives who are members of the group, and the great majority of terrorist are socially isolated: unmarried young men or widowed women who weren’t working prior to joining. These things are true for members of terrorist groups as diverse as the IRA and al-Qaida.

I think this makes lots of sense. During the late 60s and early 70s there was a vogue in many European countries for politically active youngsters to join the far left – a movement that at the most extreme produced the Bader-Meinhof group in Germany. Here in tiny and peaceful Norway a number of people who later wondered how they got into it joined various versions of marxist-leninist groups with the stated aim of violently overthrowing the state. (A great novel by the author Dag Solstad, later turned into a film, explores these mechanisms, telling the story of a small-town high school teacher who joins the movement because he falls in love with one of the leaders). This caused a number of bookish intellectuals from well-off homes to try to act and talk like "the people" (often with hilarious results) and take menial jobs with a view to start strikes, unrest and eventually, the great revolution.

The movement petered out eventually, due to a lack of examples of marxist-leninist success stories, better career opportunities elsewhere, the demands of family life and, most importantly, the failure of the general populace to join the cause. Today, most of these people (especially the ideological leaders) are found in relatively good positions in society and will not thank you for bringing up this period. (In one ironical twist, one of them is a professor of journalism – an interesting position for someone who once wanted to force the press to serve the needs of the proletarian dictatorship.)

Now, imagine what would have happened if the Norwegian state had declared war on these groups and instituted all kinds of controls in the name of national safety? Suddenly they would have increased in importance, had some legitimate cases of persecution (heavy-handed security always produces incidents) and play off the fear and irritation induced by surveillance and controls.

Instead, the Norwegian government largely ignored them, aside from discreet monitoring for weapons violations and espionage. To the extent that anyone was arrested, the perpetrators were charged with clear violations of current law and given sentences similar to those of anyone else.

The movement did not achieve much: A few strikes, a half-hearted rebellion at a few universities, a radical newspaper that still scrapes by (and occasionally is rather good, especially after they toned down the ideology,) "progressive" clothing fashions, some small groups of old professors with weird research streams, reams and streams of newspaper commentary, and that’s about it.

Now, imagine if the current war against terrorism had been pursued as a large-scale police investigation rather than a war, with terrorists being pulled into regular courts, security controls set up for security rather than show, publicity focused on a general toning down of the whole thing, money spent on improving the situation for various downtrodden groups, and military solutions employed as the absolutely last resort, and then only under the auspices of the UN.

I think al-Qaida would be reduced to a group of fringe Islamist fundamentalists with uncertain political aims, lots of fratricidal infighting (when the populace ignores them, they turn on each other), uncertain career paths and increasingly untenable positions. Which is what they were, until the Western world handed them prominence to the tune of hundreds of billions of dollars.

Bruce would, I think, agree. Here is his conclusion:

We also need to pay more attention to the socially marginalized than to the politically downtrodden, like unassimilated communities in Western countries. We need to support vibrant, benign communities and organizations as alternative ways for potential terrorists to get the social cohesion they need. And finally, we need to minimize collateral damage in our counterterrorism operations, as well as clamping down on bigotry and hate crimes, which just creates more dislocation and social isolation, and the inevitable calls for revenge.

Innosuing, not innovating

image Endnote, owned by Thomson Reuters Reuters, is suing the main creator of Zotero, Dan Cohen (Or, rather, they are suing GMU, his university.) The reason is that Zotero includes a tool that can convert Endnote styles to Zotero (much like Openoffice has functionality for converting from MS-Word or other formats).

Now, there is a brilliant market move. Endnote is primarily used by academics. I have used it since around 1991, and for a couple of years I was a beta tester (and had the T-shirt to prove it.) Aside from the T-shirt, I got zilch for my efforts (and I did find a bug or two.) Neither did the thousands of academics who have created bibliography styles for various journals and uploaded them to Endnote’s web site.

I can’t think of a better way than a law suit to make people move to Zotero. This definitely does it for me – unless Thomson Reuters pulls this stupid suit. Come to think of it, we have a number of users at the Norwegian School of Management, I am sure I can persuade quite a few of them to switch sides…..

Suing an academic for creating software for other academics which draws on work of other academics when your primary market is academics? Have they hired hired lawyers from the music industry?

Zotero is a better tool, too. Shared lists, bibliographies, support for clipping from searches, including Google Scholar. Instant saves from browsing.

Time to move, methinks. Let me see, how hard would it be to migrate my 2100+ article database….

Update two hours later: Boingboing is on the case.

Update 10 hours later: Check out the Boingboing comments – Streisand effect in the making. John Mark Ockerbloom has a thoughtful piece on the suit.

A profile of a Enterprise 2.0 employee

Excellent idea from Andy McAfee: What is your of Web 2.0 employee profile? Here is one option:

Little brother pretty fast

Cory Doctorow’s Little Brother (available for free download here if you don’t want to buy it) is a "young adult" book on the topic of surveillance and personal freedom and privacy. The story is about Marcus, nicked M1k3y, who after a terrorist attack hits San Francisco gets detained by the DHS, denied his rights, and decides to take revenge. This involves quite a bit of hacking, security, cryptography and subterfuge.

The purpose of this book is both to tell a story and to teach the (young) reader something about personal freedoms, critical thinking and how to preserve your privacy in an increasingly connected and digitized world. This shows – there are some quite detailed discussions of this, somewhat simplified versions of Cory Doctorow’s speeches and writings on these subjects.

I sort of liked the book – it is important from the perspective of raising a generation of youngsters that know enough about the technology to maintain some sort of privacy, and encourage creative thinking – loosely defined as demanding logic and actions in proportion to consequences from the authorities. Cory’s book has gotten to the NYT bestseller list, and deservedly so. This is something to be happy about, for Cory spreads the word of his book electronically (as well as the book) and this nicely vindicates that strategy and points towards the future for aspiring authors. And, as someone struggling to get young people to read about and be interested in technology – not just what it does and how it looks but how it works – I see the value in the book.

But I do wish the literary qualities, such as the plot and the character development, were a bit more ambitions. On the other hand, Neal Stephenson does that, and Little Brother is an excellent introduction to Cryptonomicon, which set the reader up for the Baroque Trilogy and the idea that, well, history matters.

So, highly recommended. Wonder when we will see the first Norwegian translation? (I have translated for Cory before, but am a bit under the weather here. Anyone for a "dugnad"?). It is not like anyone needs to ask permission…

(On a side note, the paper copy I got from Amazon had half of page 197/8 torn out. Rather than sending it back to be replaced (which I know Amazon would do without argument), I printed out those pages from Cory’s web site and put them inside the book. Saves work and time. Same thing as when I switched from a static web page to a wiki for my course syllabi – now the customers, i.e., my students, fix broken links without bothering me…..)

A simplistic answer…

Becker and Posner discusses the financial crisis, and for once I feel a little disappointed, for they somehow miss the international side of things. The financial crisis has been possible because the American people have been on an enormous consuming binge, thanks to cheap stuff from China financed by credit from, yes, China, channeled through mortgages based on ever escalating house prices.

Anyway, I was at an HBS alumni conference last week, and the topic, of all things, was technology trends and financial crises, with speakers such as Martin Wolf, Carlotta Perez and Erik Reinert. One interesting point which was brought up was the US curious insistence on always having cheap energy: Not only is there no tax on gasoline (which would have brought down consumption and emissions, given the national coffers some badly needed cash without having to sell Treasury bonds, and reduced dependence on foreign oil), but the US, according to another speaker, subsidizes coal production to the tune of $50b per year. Stop doing that, and you would help the environment and could buy yourself an investment bank every year….

Carlota Perez on how to understand global technology trends

image Carlota Perez: Global Technology Trends: Challenges to national strategies and policies

HBS 100th Anniversary

Soria Moria Hotel, Oslo

Only one of Schumpeter’s ideas accepted: Technical change is the driver of economic growth. But it is not totally random, it has continuities and discontinuities.

1970: Low cost microelectronics, sw, computers, internet, digital telecommunications….

1907: Mass production, low cost petroleum fuels, universal highways and electricity networks

Success may depend on anticipating the future, which you can do by looking at the past. There are powerful regularities and identifiable specificities in technological revolutions: Comes every 40 to 60 years, at the end of maturity of the previous technology, and has a similar sequence of diffusion in two periods of 20 to 30 years, with a financial crisis in between.

Tech revolution and techno-economic paradigms

Five revolutions: 1771 Industrial revolution, 1829: age of steam and coal, iron and railways. 1875 age of steel and heavy engineering (electrical, chemical, civil and naval); 1908 Age of the automobile: 1971 Age of the information technology and telecommunications. Next one may be biotech, bioelectronics, nanotech and new materials.

We are only halfway in the IT revolution. And each revolution takes about half a century to spread around the world.

Each revolution has a double nature: the create new industries that function as engines of growth, but there is also a new techno-economic paradigm. The first creates an explosive growth, the second modernizes and rejuvenates the mature industries.

The diffusion of each technological revolution confronts enormous resistance from institutions deeply adapted to the previous paradigm. Therefore, each technological propagates in two different periods: Installation and deployment. The first half sets up the infrastructure, usually with over-investment, but the infrastructure stays. It is a period of creative destruction, of unlearning, lead by financial capital, ends in a stock-market crash. The second is one of creative construction, led by production capital, applying the paradigm to innovate across all sectors and to spread the social benefits more widely – until maturity and exhaustion.

Why the bubble?

The capitalist economy is shaped by two different and functionally separate agents: Production capital (agent of accumulating wealth-making capacity) and financial capital (agent for reallocating and redistributing). Production capital has a long-term bias, financial capital has a short-term bias. Financial capital is better at massively redirecting resources and force new paradigm diffusion. Production capital is better for carrying growth and expansion within an established paradigm.

The role of the state changes: In installation period – the gilded age – the market does it all. In the deployment stage – the golden age – the state has an intelligent come-back, promoting long term growth.

Three investment paths for assuring long-term growth

Financial wealth and production wealth can both be destroyed, but for financial wealth you normally cannot influence it.

The best investment for the future is the capacity for technical change. Short-term, this means fostering innovation and entrepreneurship in the current paradigm. In the medium-term it means betting on the gestation of the next revolution. Insuring the long-term future means favoring open-ended science increasing the quality of human capital.

The current techno-economic paradigm shift is from the logic of cheap energy to the logic of abundant information. The new paradigm is still wrapped in the old, because cheap oil and cheap Asian labor favored stretching the old paradigm. But rising material and oil prices will lead to rising packaging and freight costs. Every little thing is wrapped in energy, such as cardboard or plastic. The visible effects of increasing global warming, with a rising climate risk (more Katrinas). There will be a change in the production, transport and distribution of tangible goods, leading to changes in business strategies and government policies.

The major transformations to expect (or to participate in): [lots of things], two being changes in lifestyle and urban planning towards activities and foot transportation.

Long-term funding: In the knowledge society, redistribution is not enough. Open-ended science works like a rich genetic pool. Investing in science, technology, education and entrepreneurship counteracts inflation by increasing average productivity. It is time to abandon market fundamentalism and agree ton a shared strategy to put order in finance and to collectively promote innovation to insure the future.

Martin Wolf on the Financial crisis

image Notes from

Martin Wolf: Challenges of globalization
HBS 100th Anniversary
Soria Moria Hotel, Oslo

Timing of this conference is very prescient….

This financial crisis is more interesting than the Depression, since it is taking out the core of Wall Street.

"Let China sleep, for when she wakes, she will shake the world." — Napoleon Bonaparte

"The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war." Alan Greenspan, FT, March 16th, 2008

"Simply stated, the bright new financial system – for all its talented participants, for all its rich rewards – failed the test of the market place." Paul Volcker, April 8, 2008

Three of the five biggest investment banks have disappeared since he said that….and the others may not be around for another week or so.

What is driving the world economy?

It is the biggest globalization and convergence story of all time (last 20 years). There is a global move to the market, with liberalization of barriers to trade and capital flows, declining costs of transport and communications (half the world’s population has access to mobile phone in 2010), entry of countries containing billions of people into the world economy (China, India and former Soviet Union has doubled the world’s labor force) and the growth of those economies

What is upsetting the world economy?

Hyman Minsky: Success leads to excess. A world of low inflation and strong growth generates confidence.

Global imbalances also lead to monetary excess, asset price booms and credit explosions. The US was the target for global excess savings, but if a country spends more than its income, so must its citizens. US Households did most of that spending. Surplus of capital everywhere, 70% of it going to the US. UK, Spain and Australia also large importers of capital. The problem continues: China’s surplus is $400b annually already, and rising. This ultimately leads to revulsion, house prices collapse. What makes it worse is that inflationary pressures have risen, too, largely because of rising commodity prices due to more demand from China – the one-off impact of globalization has weakened.

(One reason for the housing boom is that the stock market has been depressed since 2000.)

The striking feature of this from the capital exporting side (aside from Germany and Japan, which accumulate capital and the waste it, mainly abroad), 5,5 trillion in foreign currency, mainly in the US, by China, Japan, Asia, oil exporters and Russia.

Hyman Minsky: when times are good, investors take on risk, the longer times are good, the more risk they take on. Ultimately, they take on too much risk, asset prices overshoot, and then fall, debt is called in, and the system collapses.

We are at the early end of this disaster….

What is the future of global capital markets?

This is a fundamental shift. The savings-surplus countries have with massive capital funds, much of it in sovereign wealth funds (larger than hedge funds and private equity already, 5% of global capital). The countries that need investments don’t have reliable capital markets.

Conclusion

Globalization itself is an immensely powerful political, economic and technologic process, though it is not by any means guaranteed to continue. Capital market integration has proved to be highly unstable. governments are going to be much bigger players in global capital markets form now on.

Classic writing…

ACM Ubiquity re-published something referred to as a classic today, which to me came as a surprise, especially since, well, I wrote that thing in an hour or so as the result of a direct question from John Gehl, former editor. But hey, being called a classic can’t be all bad, can it?

Alternatively, cucumber season is raging across the pond…

Google Chrome

Google is announcing Google Chrome, an open-source browser tailored to, amongst other things, the multimedia rather than text-oriented uses of the web according to this comic by Scott McCloud (warning – slow site at this point). Here are some screenshots – looks to me like they have taken ideas from Opera (thumbnail navigators) as well as Firefox (autocomplete, private browsing). A nice feature seems to be the memory leak monitor – some web pages can cause a lot of memory problems (Incidentally, I installed AdBlock Plus in my Firefox version, which helps a lot.) See Slashdot for the usual comments, Nick Carr has a discussion about this as an important step towards cloud computing (and the goal of Google being to upgrade all browsers). Mozilla says they are not worried about the new competition No points for guessing what is going to be the top search term and discussion topic in the blogosphere this week.

image

Google Chrome, if it is to take off, needs to become a real competitor not to IE or Firefox (they can easily implement most of the added features) but to Vista. And the only way it can do that is by integrating the various Google applications (search, Calendar, Docs, etc.) into the browser. It also needs to be faster than IE or Firefox, and to handle upgrades easily. My guess is some kind of offloading to server-based rendering, much like Opera Mini is doing, making it easier to provide regular HTML to cell phones and the like. If it displays Google apps faster (and more reliable – Youtube is not persistently good on Firefox) than anything else, then it could quickly become important.)

Another way to gain share would be to exploit the enormous collection of user stats that Google has, to produce something that tries to guess the intent of the user and provide suggested links and user-influenced interfaces. Information systems these days is more and more about guessing the users intent rather than having him or her specify it up front, and Google is well informed (too well informed, some would say) about what we like to do.

Update 8/3: Have installed it. Runs fine. Memory management as good as advertised. Won’t be switching over from Firefox soon, but we’ll see over time. As for the story behind Chrome, Steven Levy has a good writeup, as usual, in Wired.