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The girls in the family and I took Walter and ten of his classmates to the Rangers game as his 10th birthday party. No greater test of parental love has every been devised than stopping 10 soda-fueled boys from inflicting permanent inner ear damage on one another -- not to mention 18,200 innocent hockey fans at the Garden. It is truly a miracle of Darwinian selection that so many of these boys outlive their every attempt to blind one another with a flicked bottle cap, cross-check one another over the guard rail or generally attempt to maim, torture or trip one another. I have new found respect for the incredible policing, let alone teaching, prowess of the teachers at Walter’s fine boys’ school.
In the event, we were all rewarded with an exciting Ranger win over the Devils. Henrik Lundqvist was particularly sharp in goal in the 3-1 game. What I had forgotten in years of only watching hockey at home was (i) how much better it is to watch in person and (ii) how much of a throwback it is to witness the spectacle of hockey fights in our era of organized and highly regulated violence in sport. I will leave it to the sociologists to explain why we do not permit tall black men to fight in the NBA but seemingly encourage stocky white men to do so in the NHL. I just don’t feel it adds to the game in any sport, while I nonetheless recognize the passion with which the game is played.
This was very much my week for hockey as earlier in the week, I hosted a party at the Thomson Reuters sponsored ice rink at Canary Wharf in London. What I had not counted on was that my hosting duties included actually playing 3-on-3 hockey with clients and colleagues. However, one of the fringe benefits of being the ceo is that I was paired with NHL Hall of Famer, Luc Robitaille as one of my two teammates. Never in his 19 record-setting seasons did the former LA Kings star ever work harder to score a measly assist. Despite Luc’s every effort to place the puck on my stick in front of the goal, I failed to score a single goal in my first appearance on ice in 30 years. Fortunately, however, across the many games, others including Luc and the Canadian High Commissioner did score, resulting in $28,000 going to Haiti earthquake relief at $500 per goal.
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The theme for this year’s edition of the World Economic Forum in Davos was “Rethink, Redesign and Rebuild.” While the actual rebuilding must await the delegates return to their home countries and the transition from talk to action, nonetheless the 2010 Forum lived up to its mission.
This was the 40th anniversary edition of Davos and the global financial meltdown and resulting Great Recession overshadowed every other topic. For those who have never been comfortable with the harsh freedoms of the market economy, the ravages of the deep recession provided a renewed opportunity to argue for their favorite blend of Marxism, socialism, controlled-economy or not-for-profit entrepreneurship. While I have always maintained that a prudent regulatory framework is not inconsistent with a free market economy (see, e.g., Towards a New Capitalism, Nov. 2008; London Chamber of Commerce, Feb. 2007, infra.), I found myself in an odd place on several panels defending the core principles of the free market. Despite its imperfections (e.g., a tendency to monopolies if left unchecked) and its resulting need for some government regulation, no other system allocates capital and labor as efficiently, thereby increasing the size of the pie for all.
On a similar note, while there was no shortage of poor banker conduct over the last several years to criticize, I found myself reminding serious global leaders that it might be difficult to deliver the jobs and entrepreneurship they professed to value without the credit intermediation function of banks. Bankers have few friends these days, and at times the entitlement culture of some of these Masters of the Universe does test one’s devotion to sensible policy outcomes; however, I don’t want to live in a country where the modern banking system is replaced by some government or shadow credit provision mechanism.
President Sarkozy delivered a mellifluous address in French, but after assuring the audience that he had not come to Davos to lecture us, he proceeded to do just that. After ranging through mark-to-market accounting, compensation abuses and the achievements of his government, Sarko announced the not unambitious goal of saving capitalism from itself.
This year’s Davos was, however, decidedly less anti-American than in the past. Whether this was thanks to the more multilateral approach of the Obama administration or the recognition in Europe that all is not well in the Old World with the PIGS (Portugal Italy, Greece and Spain) threatening the economic cohesion of the Union.
As always, there was plenty to be depressed about – the global economy, the militant theocracy in Iran, the stalled Mid-East peace process, the likelihood of peace ever being achieved in Afghanistan, the lack of progress on climate change, the overheated Congress Center, etc. However, come Sunday and the end of the conference, no amount of talk or hot air could overshadow the timeless beauty of sun shining on two feet of fresh powder on the long, tree-lined descent to Klosters. For the ACL not torn I have much to be thankful for.
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Now that Congress is well on its way to passing healthcare (or more accurately, health insurance) reform, it is time for me to return to the topic of financial regulation. My worry is that with the current predilection of our legislators for policy by sound bite, we are unlikely to emerge with thoughtful reform.
In my earlier post, Towards a New Capitalism (November 2008), I argued that free market capitalism and sound government regulation were not inconsistent goals, and that after attending to the primary task of returning the underlying economy to job-creating growth, the new administration should undertake a thorough overhaul of financial regulation. Unfortunately, there is so much misinformation and superficial thinking coming out of Washington that I fear we will get lots of regulation but little reform. Let me cite some examples.
Last year Senator Grassley introduced an amendment to the TARP legislation that would have barred financial institutions that received TARP funds (whether they asked for those funds or were just ordered to take them) from hiring foreign workers on H-1B visas. This was part of a broader political backlash against immigrants “taking American jobs.” Not only do I find this trend to be dumb public policy but downright un-American.
First, from a policy prospective, no matter how sympathetic one is about the unemployed 50 year-old autoworker in Detroit, he is very unlikely to return to work in place of the 23 year-old Indian math wiz at Goldman, Sachs. I believe we should do everything possible to retrain the unemployed, provide a decent social safety net (including health insurance) and create real jobs in the economy, but ordering banks not to hire the best talent available is not the way to rebuild America. Unfortunately, however, it makes for good politics and great media sound bites: “I am not going to sit idly by and let taxpayer-supplied bank bailout funds go to replace American workers with foreign temps.” In fact, the immigration of talented workers to the US has been a great engine of GDP growth, and compared to European nations with falling populations, the US economy can be expected to continue to benefit from immigration over the coming years.
Second, I think bashing immigrants is counter to the great promise of America. Anyone for “Give me your tired, your poor, your huddled masses yearning to breathe free”? I recognize that the US has not always been a welcoming shore for immigrants throughout our history, but this is our national myth, what is “written on the box,” what we aspire to. It is a worrying sign that we may have turned to keeping others from sharing the pie, rather than working together to increase the size of the pie. A land of “manifest destiny” does not look inwards.
Another worrying example is the diversionary focus in Washington on banker pay. I do not mean to suggest that there have not been some egregious examples of mis-aligned incentives. However, for me the key issue was a mispricing and unfair allocation of risk. Quite simply, the system permitted the gains to be privatized and the costs to be socialized. Prior to the financial crisis, many institutions were, effectively, overstating the earnings out of which they were paying large bonuses by not sufficiently reflecting the true cost of the risks they were incurring. This was neither illegal nor in violation of applicable accounting standards, but led just as surely to outsize profits as if an industrial company under-accrued for future taxes liabilities
Post crisis, there is another pay controversy. Many banks made large profits in 2009 on the back of unprecedented government intervention during the crisis and a steep yield curve. Politicians and pundits, pointing to an angry public, are seeking to ban or tax the potentially large bonuses that may be payable. The UK attempt to tax banks into limiting bonus payments seems to be backfiring per the usual law of unintended consequences, and now shareholders are beginning to complain that they will be saddled with lower returns. Again, there is a simpler way. Governments have effectively underpriced the value of their 2008 market interventions and thus bank profits are recovering pre-maturely. It is not unusual for bank regulators to encourage banks to recapitalize over time via extraordinary profits (often abetted by inflation), but absent further regulation, it should not then be surprising that this will lead to large bonus gains.
The final irony for me is the political pressure that has been applied upon banks around the world to change the form as well as the quantum of compensation. It is no bad thing to require a large proportion of comp to be paid in the form of equity that must be held for three to five years at a minimum. Most public companies already work that way. However, it is naïve to think that pay plan design alone will solve all the issues. We should not forget that the “poster child” for banker greed, Dick Fuld already complied with exactly what the reformers would like to mandate. He took most of his pay in Lehman stock, and went down with a $1 billion loss. If this is not skin in the game, then I don’t know what is.
Prudent regulation of financial institutions is necessary because of the important credit intermediation role they play in the modern market economy. But no system of regulation or incentive compensation is self-effectuating. The rules should establish a principled framework in which managers and directors are given the responsibility to act in the best interests of their institutions and held accountable when they fail to live up to those standards. Rather than setting pay limits, regulators should focus on fair, accurate and transparent accounting standards. If the true long-term costs of various activities were accurately reflected in a bank’s accounts and compensation system, there would be no need for “Pay Czars” or windfall taxes.
The American democracy has been prone to cycles of extreme political polarization. It is unfortunate when the climax of one of these cycles coincides with a period in which the nation needs sound policy-making over politics by sound bite.
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I write on the long way home from a trip that started in Tokyo and ended less than two weeks later in Dubai. During these 12 days, I visited customers, partners, government officials and staff in Tokyo, Beijing, Shanghai, Hong Kong, Mumbai, Hyderabad, Chennai, Bangalore, Abu Dhabi and Dubai. While Asia and the Gulf are regular destinations for me, I seldom try to cover this much ground in such little time. Fun for the aging body it is not. However, it was a great opportunity to compare how half of the famous BRIC countries were recovering from the global recession and getting on with fulfilling their destiny.
In 2001, Jim O’Neil of Goldman, Sachs coined the term “BRICs” to refer to the fast growing economies of Brazil, Russia, India and China. According to O’Neil and his colleagues, these four countries which then accounted for only 15% of the GDP of the G6 (US, UK, France, Germany, Italy and Japan) would account for more than 50% by 2050 and would push out all but the US and Japan from the list of the six largest economies in the world. I remember reading the Goldman report and thinking at the time that it set forth a logically compelling economic argument, but that it did not help me picture how we would get from “here” to “there.”
Less than 10 years on, while Russia seems to have fallen to earth, my two-week speed tour suggests that India and China have shrugged off the financial crisis and have resumed their ascent. In fact, the deep crisis that has engulfed western markets only seems to have accelerated the growth of India and China. History normally flows gradually forward in such imperceptible increments that we ignore its progress. Sometimes, however, we can see it speed along like a flower filmed in time-elapsed photography. Such are the times in which we live.
I can now readily see how at least the BICs will fulfill their forecast destiny. I have written previously about Brazil’s progress (see infra Is it Brazil’s Time? (2007)), and the signs there continue to be good. However, it does feel to me as if we are living through the transition from America’s century (20th) to Asia’s century (21st). (Europe’s century was obviously the 19th ). Despite all our challenges, I remain optimistic about the United States. Sure we need to begin living within our means and not treating the roofs over heads as a revolving credit facility, but the productive and innovative capacity of the country is still great and Asia’s rise need not be a zero sum game. Nonetheless, America’s reign as the world’s only superpower will have been short-lived.
A final note on two weeks of trains, planes and automobiles: Don’t count out the Gulf. While Dubai’s current problems are well known, it would be wrong to conclude that Abu Dhabi, Qatar and Bahrain are all one large palm-shaped sand bar stretching into the sea. Anyone for the 22nd being Africa’s century with the Gulf its major trading hub?
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This week I did something very unusual for a life-long Mets fan: I cheered the Yankees to their record 27th World Series triumph. I have friends, not even Mets fans, who complain that the Yankees don’t deserve our respect because they simply bought their way to victory. I say the Yankees deserve our praise because they do what any great team is designed to do – they win, and they do so in an exciting way. Now, don’t get me wrong sports fans, I am not about to trade-in my life-long and generally unrequited love for the Mets. When they win, on average once every 24 years, it is a sublime experience. However, I have to hand it to the Yankees – they are a class act.
Baseball has been much on my mind lately. When my family and I moved back to New York from London last year, the move went very smoothly and we lost neither children nor pets nor most of our possessions, except for one missing item: My circa 1973 Rawlings baseball mitt. Not just any glove, mind you, but one that had been lovingly worn-in through years of play, oilings and nights tucked under a bed corner. This was no longer a stiff piece of cowhide; this was as supple as a fine Italian driving glove. But now, the mitt was gone, vanished into that black hole where favorite running shoes, iPods and keys disappear beyond the event horizon.
So you can imagine my horror when I had to go out and buy a brand new mitt to play catch with my son Walter. I have to admit, that my new glove was a bit of an equalizer – wearing what felt like a cinderblock on my left hand, I dropped as many fly balls as nine year-old Walter. But as I was explaining how I would never have missed a particular catch with my old glove, a new business idea came to me. How many other aging ballplayers had lost their favorite glove or had it thrown away in some over ambitious housecleaning? Might there be a market for pre-worn baseball gloves akin to the market for pre-washed jeans? Would every dad need to wait until he could no longer throw a ball just to wear-in a second mitt, all the time explaining to his wife why they needed to sleep for the next five years with a filthy leather glove tied around a baseball under their mattress?
As I was just putting the finishing touches on my brilliant new business plan, a funny thing happened. I found my old mitt hidden in a bag at the back of a storage closet. It was even better than I had remembered it. Soft, pliable, curved-up at the end to scoop ground balls. So I grabbed Walter, ran to the park and put the mitt to work. Walter was a bit surprised at my new-found zeal, but I have not had so much innocent fun since the Mets won the1969 World Series.
Now if the 2010 Mets could only trade JJ Putz for Tom Seaver I could stop pretending I am a Yankees fan.
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This is a post about curved spacetime. Don’t worry I am not going to attempt an amateur explanation of our four-dimensional universe courtesy of Einstein’s Theory of General Relativity. Instead, this is a story of how the current generation of kids relates to time and distance in a fundamentally different way from their parents.
I was on a panel the other day with Josh Silverman, the ceo of Skype, and I told him the story of how my 11 year-old daughter, Mariana, uses the service to stay close to her friends in London. When I was growing-up in New York in the 1960s and 1970s, my family was fortunate to spend our summers in France. I had a group of “Summer friends” whom I only saw a few weeks a year and, with the exception of an annual Christmas card, did not speak to or correspond with either. I did not dream of calling these friends because international long distance was something reserved for three-minute emergency calls.
Contrast this friendship interruptus with Mariana’s social life. When our family moved back to New York after seven-plus years in London, Mariana left behind some very good friends. However, rather than falling into her father’s pattern of the occasional Hallmark holiday card and an annual visit, Mariana stays involved in the lives of her friends over Skype, IM, SMS and other modern marvels. The quality of her interactions is also far different than mine were. Mariana remains part of her friends lives in real- or at least near-time. Where I might recount in the Summer or via a card only the highlights of my year, these girls stay close to one another and share the more mundane daily texture of their lives.
I think a number of important consequences flow form this change in communication – most of them very positive. First, these digital natives only have a single large group of friends as opposed to the geographical clustering of my generation of digital immigrants. This is not to say that space no longer matters at all – we humans, even the most modern editions, still live more or less in one place. However, location need no longer isolate us.
Second, the cost of Skype and similar media is essentially zero. This means that communication can continue until there is nothing further to say rather than when your three minutes of phone time or ten words of telegram cost units run out. My mother still tells me that I should call Cousin X when I am in Chicago for a few hours, not being able to wrap her brain around the development that time more than cost is the limiting factor when it is no more expensive to call Cousin X from New York than locally.
Third, the quality of the narrative changes when neither location nor cost impinges on the message. Mariana and her friends have real conversations – their sampling rates in converting analog life into digital communication streams are high. Accordingly, they do not need to fill each other in about what happened in their lives in between messages; they live more synchronously.
I don’t yet know how my children’s lives and relationships will be changed by this bending of spacetime, but just as Einstein noted that the position of the observer alters his perception of motion, I am just an outsider looking on in wonder.
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Why did early broadcast television often show images of announcers standing in a radio studio speaking into microphones? Why did early adopters of cell phones sometimes stand in old phone booths to make calls from the street? And why did the first websites launched by newspaper companies look like electronic versions of yesterday’s paper? [Clue: because they were.]
We think a lot about these issues at Thomson Reuters. They are examples of what behavioral economists and psychologists call framing. It has been demonstrated empirically that the manner in which fundamentally identical choices are presented (or framed) to humans can result in very different outcomes (See Amos Tversky and Daniel Kahneman, 1981. "The Framing of Decisions and the Psychology of Choice." Science 211: 453-458.).
OK, enough social science, why is this important? I believe we humans have a marked tendency to carry over the limitations of the last era’s technology to our first applications in a new domain, regardless of whether these limitations remain necessary. It is as if our imaginations remain in blinders.
Here is an example from the professional information world I inhabit. The first versions of many professional database products such as our Westlaw required the user to first choose the specific database she wished to search before entering her query Google does not require this, so why did we? Framing. Prior to electronic legal search, researchers like I used the law library. If I needed to research an issue under Delaware law, I went to the appropriate shelf in the library and then chose the relevant authority. So when this user workflow was carried over to the first electronic systems, it seemed simple enough to require the user (often the librarian in the early days) to first identify the appropriate database (the “shelf”) and then formulate his query.
Old habits die hard, but I am glad to say that the latest version of Westlaw now in beta has been freed from these old restraints. All the complexity resides in the sophisticated search algorithms and the interface is blissfully simple and elegant. A great deal of what we think of as innovation is really an exercise in removing our inherited blinders or jumping out of our frames. But if it were that easy, the the first cell phone would have been an iPhone.
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I shall turn 50 tomorrow which does not worry me at all. Not having set goals financial or personal that needed to be achieved by a date certain, I am free to pursue my open-ended objectives: a happy marriage, kids who seek success for their own fulfillment and not for the greater glory of their parents, friends who share universal values but present them in novel and fun packages, a dog who is always happy to see me, and the sort of work at which one does not eagerly count the days to retirement.
As the philosopher-poet George Santayana wrote, “For these once mine, my heart is rich with these.” There is but one aspect I fear. In the Pyrrhic battle against aging but not age, I put in my time at the gym and its sweaty blend of weights and technology. I have long since resigned myself to punching my true body weight into treadmills, cross-trainers and stationary bicycles, and I had little trouble entering “49” this time last year. However, I can’t quite yet see myself entering “50” tomorrow. Perhaps for all sorts of good reasons, I should get to the gym still tonight.
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I like to play and to watch tennis. Roger Federer has been and remains my tennis hero because of his outstanding record of achievement on the court and because of the classy way in which he wins – he is the most complete and the most elegant player of all time. No one before him has combined both power and grace in such a potent competitive package.
I greatly admire Rafa Nadal’s huge power, speed and ferocity (at least when he is not playing injured); I warmed to Andre Agassi over the years as immaturity gave way to pure heart; Pete Sampras and Rod Laver occupy their rightful places in my pantheon of tennis gods; Bjorn Borg and Pancho Gonzalez deserve special mention; and Arthur Ashe, while not among the greatest players was surely among the greatest human beings to win a major.
In addition to the pure fun and physical exertion of playing tennis, I enjoy the personal challenge of self-mastery and quest for self-improvement. Two mathematical functions describe my game. The first is the downward sloping curve of physical ability, speed and power as I approach 50; the second is, thankfully, the upward sloping curve of experience, court time and muscle memory. For the time being, the slope of the latter exceeds the former, and thus their point of intersect has been rising.
I also enjoy the mental and competitive aspects of the game, marking my progress by epic matches with close friends, with the satisfaction of a rare win over a better player far outweighing any disappointment at a loss. The parallels between sport and business are overused to the point of being hackneyed; however, the focus, drive and control required to perform at world class levels are similar.
It was thus with a tinge of sadness that I watched Roger Federer self-destruct Monday evening at Flushing Meadow. He coasted, seemingly effortlessly, through the first set and a half and then seemed to grow complacent. He let an imposing Juan Martin Del Potro back into the match and then could not take back up his game as so often in the past. I have seen businesses do the same, including one I have spent much of a career getting back into the game.
I see this year’s US Open final as less of a passing of an era, although Del Potro will all but certainly mature into a potent force over the coming years, and more of a cautionary tale for all of us on the court or in business. We are at our most vulnerable when we achieve our greatest success and acclaim. A bit of healthy paranoia and humility, so long as it does not bring on self-doubt and paralysis, is no bad thing.
Federer has had a very good year in tennis, and more importantly a very good year in life with the birth of his twins. His place in tennis history is assured, and the next time they meet, I have a hunch Del Potro will need more than his huge forehand to win.
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When my friends at BusinessWeek asked me to contribute an article to an issue they were planning on the role of optimism in business, I was happy to oblige for two reasons.
First, I believed that I had an important case to make that growth in the number of professionals in the developing world (and the concomitant spread of the rule of law, fair and transparent financial markets, and high quality healthcare at an affordable price) is not only good for Thomson Reuters, but also for the societies in which these professionals work.
Second, BusinessWeek itself has been the subject of a number of swipes in other publications ever since rumors of its purported sale began to leak, and I was happy to support Steve Adler and his very professional team at BW. The fact that the economic model for business news has shifted rapidly under the feet of BW, Forbes and Fortune should not now be seen to detract from the quality of the work of their journalists.
Here is the article from the August 24, 2009 issue:
A Boost from Professionals
The rise of a class of highly trained workers in the developing world bodes well for growth
As Western societies debate the shortcomings of free-market principles that contributed to this downturn, they appear to have overlooked a powerful, positive global trend. The developing world is quietly embracing the transparency, rule of law, and market pricing that have underpinned the past 100 years of rising global prosperity. And this has led to a growing global professional class.
Why are these new professionals important? Because the growth of law, accounting, and other professions requiring formal training appears to be correlated with lower corruption levels and growth in gross domestic product in these countries. That's excellent news for our networked world economy.
A generation ago, for instance, patents didn't exist in China. The country did not even adopt patent laws until 1985. At the time, there were a mere 5,000 attorneys to serve a population of more than 1 billion.
PATENT POWER
Today, China is an intellectual property powerhouse. According to the Derwent World Patents Index, which we at Thomson Reuters publish, China now issues about 30,000 patents annually, helping to keep the country's 150,000 lawyers busy. Measured by applications, China's patent office has become the third-busiest in the world, ranking behind only Japan and the U.S. It is expected to pull ahead of both by 2012.
No short-term economic disruptions can derail the powerful developments behind China's patent boom: the transition from an economy based on manufacturing to one based on technology and the establishment of a legal system that encourages innovation by protecting property rights.
Indeed, China's ascendancy in the global patent market highlights a broader trend of professionalization in the developing world. The growth in the number of lawyers in China is mirrored by the increase in accountants in India, physicians in Brazil, and financial traders in Dubai. This expanding army of professionals is on the front lines of globalization.
It includes a wide variety of specialists whose vocations require prolonged training and formal qualification. Definitive numbers are difficult to obtain, but Thomson Reuters analysis indicates that the total number of global professionals in developing countries now stands at 4 million, a figure projected to grow at 6.5% a year, to 5.2 million by 2013.
The ranks of these professionals are mounting not just because these nations are beginning to get serious about transparency, the rule of law, and market pricing. There is also a broader force driving the growth of this class: the continuing harmonization of worldwide legal and financial reporting rules.
Consider International Financial Reporting Standards (IFRS). By 2013 more than 90% of the world's gross domestic product will be earned in nations that have adopted the IFRS, creating a strong global demand for accountants who have been trained in these regulations.
What's more, since the U.S. Congress passed the Sarbanes-Oxley Act in 2002, more than a dozen other countries—including Australia, France, India, Japan, Mexico, and South Africa—have passed similar laws and regulations. This has prompted the proliferation of still more professionals.
When you have a global community of professionals—accountants, lawyers, or financial practitioners—speaking a common language, it is easier for developing countries to do business with the developed world. One of the main reasons Islamic finance has blossomed into an estimated $1 trillion business is that a skilled community of professionals has developed, a group that is adept at merging Islamic religious principles with Western criteria for financial product development and standardization. Islamic finance didn't even exist as a specialty in the early 1960s. Now it's estimated to be growing 10% to 15% annually.
DECLINE IN CORRUPTION
And it's not just about doing deals. While there are exceptions, there is strong evidence that professionalization leads to an increase in production and a decline in levels of corruption.
The Czech Republic has seen the number of professionals in its workforce grow by 15% over the last five years, a period in which the country also has shown a 9.5% gain in per capita GDP and a 40.5% improvement in the widely used Corruption Perceptions Index published by Transparency International, a Berlin-based nonpartisan group that supports anticorruption reforms around the world.
The Czech Republic isn't the only developing nation profiting from professionalization. Higher GDP and lower corruption levels are seen across the fast-growing business economies of Eastern Europe. Over the same period, for instance, Poland has had a 37% rise in the number of professionals, a 17% rise in per capita GDP, and a 15% improvement in its ranking in the Corruption Perceptions Index.
At a time when the world is enduring the worst recession since the 1930s, good news can be easily overlooked. The professionalization of the global workforce is excellent news, and we should not underestimate its impact. As it channels the recovery into today's fastest emerging markets, professionalization will help frame the coming economic rebound.
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It's a while since I've written a serious piece in this blog about business or technology strategy, so I thought I would make amends below. After this dry piece, the few remaining readers of this blog will probably wish that I go back to soccer and sauna – at least subjects that I know something about..
First, the punchline. I think one of the most difficult decisions managers need to make in any business that relies upon a significant amount of technology (pretty much every business these days) is when to do it yourself and when to partner or rely on third parties. Dangers abound on either side of these narrow straits. If you choose to do everything yourself you may very well please your in-house developers, but you'll soon find that you suffer from a terrible case of "not invented here" syndrome; you will in all likelihood lack sufficient scale; and you will find that your costs become uncompetitive. However, if you steer to the opposite shore and do nothing yourself, you will have no differentiation, no proprietary advantage, and others will be able to readily duplicate your efforts. Scylla and Charybdis indeed.
To me, the course to set to avoid these perils lies in truly understanding the intersection between what your organization can do better than anyone else and how these technologies can advance your business objectives. In the old days you could consider this buy vs.build strategy once every several years, or at worst, every budget year. Given the exponential development of technology, I believe that managers now need to think through these issues on a rolling quarterly basis.
To start with, no one should approach technology as a single undifferentiated mass any more than a manager should assume that all his customers and markets are the same. Not even the very best technology companies are good at every aspect of every technology. The key is deciding where to pick one's spots and how to understand and measure what these specific technologies can do for your business. Too many people fall in love with the leading technology of their era or become infatuated with the plumbing or gadgetry, rather than seeing on a more abstract basis what technology can do for a business.
Let me give you an example from the history of Thomson Reuters. At various points in our development, pigeons and rowboats represented state-of-the-art technologies which conferred significant competitive advantage. The pigeon story is perhaps the better known. During the mid-19th century Paul Julius Reuter used carrier pigeons to bridge the gap that then existed in the telegraph system between Aachen and Brussels, and thereby beat the next best technology (couriers on horseback) in delivering the news as fast as possible. I sometimes joke within the company that old Baron Reuters also invented redundant packet transmission (a feature of some modern routing networks) because he sent two pigeons with identical news scrolls attached to their legs.
Some years later, the Baron again introduced a great technological advance in low latency transmission when he engaged an intrepid Irish rower to intercept mail boats coming from North America and row back to shore to telegraph the news to London, thereby beating other news services that needed to wait until the mail boats docked in England. It was in this manner that Reuters scooped the London market by hours with the news of the death of Abraham Lincoln in 1865.
The serious point I'm trying to illustrate with these quaint stories is that we are often trapped in and by our current generation's biases as to what constitutes "technology.” Thus, in the mid-19th century pigeons and rowboats represented signficant technological innovations compared to the then state-of-the-art. The key is to focus on the business benefit and value to the customer ("deliver the news faster than the other guy") rather than obsessing over the current methodology.
I believe we can see a modern equivalent of pigeons vs. horses being played out today in the media business. Serious grown-ups are having a hard time making the distinction between quality journalism and the printing of news on paper created from wood pulp. Again, the key is to focus on the customer benefit (provide me with information concerning what's going on in the world that I either need to do my job or enjoy as a form of entertainment) rather than the specific publication technology of the era.
It turns out that publishing news on processed wood pulp paper has actually been a very good and long-serving medium. It has been relatively cost efficient; it provides high contrast, highly legible output; and it is easily portable. People forget, however, that before wood pulp, stretched animal skins, papyrus and even cave walls once constituted "paper". It should not be too far a stretch of the ordinary imagination to foresee a day when printing with electronic ink on a highly flexible and reusable, and probably plastic-based sheaf of "paper,” will be seen as the obvious state-of-the-art technology. In fact, I'd go as far as to say it will be seen in retrospect that the felling of trees in a Canadian or Finnish forest, their transportation using fossil fuels to a paper pulp mill, their processing into "paper" via a noxious chemical process, their re-shipment in large rolls to newspaper plants around the world, their printing with only a single day’s worth of news, and their third shipment to your front door or newsstand as a modern “newspaper” will seem like the most counter-intuitive, environmentally unfriendly and uneconomic production chain of all time.
So the moral of this story is that companies and their managers should stay as agile as possible with respect to the current generation of technology; they should focus on the customer and business benefit and not the plumbing; and they should be prepared to re-invent the underpinnings of their enterprise. We have too many examples of the mainframe makers who failed to transition to mini-computers; the mini-computer makers who failed to become PC makers, and the PC makers who may yet fail to transition into net appliance makers interacting with the cloud. Even the mighty and much hyped cloud will one day pass as well.
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Every year our family spends 10 days or so at our lake house in Finland. This is not a random choice as my beautiful wife Maarit was born and grew up in this watery land of thousands of lakes. (She also reads this blog from time to time, so I will earn some serious Brownie points for the prior sentence.)
This year I only managed to eke out a long weekend at the lake, as I was working double time during June. Nonetheless, it was a welcome break and I was able to cram in my usual regime of fishing, rowing, biking, swimming, sauna and beer. As Maarit’s tastes are too refined for beer, and the kids are still a bit young, this leaves my 81 year-old father-in-law, Harto, as my prime drinking buddy. This suits me just fine, because since my Finnish has not improved much in 21 years of marriage, it leaves plenty of time for drinking.
The Finnish lake house has been an important part of growing up for our kids, now 9 and 11. They have learned to fish on the lake, and then clean and cook their catch; they’ve learned to row and kayak; they’ve learned how to build and roof a small house; and they’ve learned how to prepare and take a sauna. Most of all, they have learned how to survive ten days without Wii, Playstation or shower. To their great surprise they have learned how to operate a wood-pulp based output device which permits advanced story-telling and requires little power to operate other than a dexterous manual maneuver from right to left.
This year was also the year I was planning to correct one major hole in Walter’s education. His sister Mariana, now 11, learned to ride a bike on the soft dirt roads along the lake, and now happily rides with her dad. So, I explained to Walter it was high time for him to complete this essential part of his education. He was not enthusiastic. I tried a variety of tactics. Legal reasoning: “Any boy who can waterski mono at age seven and score five goals in a league soccer match, must be able to ride a two-wheeler” – this is what a criminal lawyer would call a lesser-included offense. Practical fatherly advice: “One day a cute girl will ask you to ride home with her from school and you will wish you had learned how” – Walter reminded me we live two blocks from his all boys school. Finally, the ultimate argument: “Your sister can do it and you can’t.” Bingo, out we went.
Lance Armstrong will be pleased to hear that there will not be a new serious contender in this year’s Tour de France, and I must admit that Walter was not thrilled when I failed to catch him before he skidded into a nasty nettle patch, but I am proud to report that he will not be the only boy who cannot ride a bicycle.
My hard work done for the day, I returned to perspiring beer with Harto in the sauna.
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My son Walter’s spring soccer season ended today – under the rain. It’s as if we never left London. Now I understand how prescient these kids were to name themselves the “Aqua Dominators” at the beginning of their blue-shirted season. The good news is that Walter, age 9, really learned how to play the “beautiful game” during his seven plus years in the UK. He does not quite yet bend it like Beckham, but neither does he sport any manly tattoos.
Passing the ball must be like underarm hair, something that boys must await puberty to master; however, there are glimpses of glory. The diving header (or as his English godfather Ed calls it, “ ‘it me on me noggin mate”); the deft weaving through three defenders to score; or the diving penalty defense in goal. It's great to watch your son score the goals you had planned to score yourself but somehow never did. It is also gratifying to watch teammates grow through the season and come to know their foibles (“Oh no, not another pass across your own goal mouth”) and their triumphs.
Some of the fathers do get a bit carried away. Pacing the sidelines like frustrated Alex Fergusons (we Barcelona fans like our Fergusons to be frustrated), barking out useless commands to their children (“center the ball,” “look for the open man”), or loudly overruling the hapless referee. The best invention in youth soccer is the “silent week” the team played earlier in the season. In those matches, no noise is permitted from the sidelines, including from the coaches. The idea is to let the kids organize themselves and learn, in effect, to coach themselves on the field. Not only did the team play well on its own, but the parents (yes, there are some moms) also learned that a marionette’s string does not invisibly connect their larynxes to their sons’ feet.
Some of the better kids are off to soccer camp for the summer. Walter has his own version –a daily regime of full field, one-on-one, against his dad. Judging by the spring season, this may be the year that son starts to beat dad in one sport after another.
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I recently participated in a series of video interviews with an innovative online service called big think www.bigthink.com. The site describes itself as "a global forum connecting people and ideas."
In a wide-ranging interview, I discussed my thoughts on managing risk in an uncertain and volatile operating environment and avenues of growth in professional information businesses.
Rather than transcribe the interview here, I provide a link to the video below. In addition to saving me precious typing time, this referral might encourage you to explore other more worthy interviews.
http://bigthink.com/topics/business-and-economics/ideas/anticipate-risks-and-create-new-opportunities
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A couple of weeks ago some old friends and I headed out to the Meadowlands Izod Center to hear The Dead. Not exactly The Grateful Dead of old, as Jerry Garcia can never be replaced, but a reformed and worthy sequel. Rather than seek some pale American Idol simulcra of Jerry, the remaining original members of the band were smart enough to reinvent themselves. So this year they are touring with excellent musicians, including Branford Marsalis, who do not try to ape Jerry, but instead take the sound into new places.
The Dead were always a great concert band – their rollicking jazz-like improvisations and modulations turned each concert into a different experience. For these musicians, the goal of a concert was never to reproduce the exact sound of their latest studio album; rather, each show was a unique jam session which might very well feature some songs that had also been released, but never in the same way. The ultimate “been there, done that.”
Along the way on that proverbial long strange trip, I believe that The Grateful Dead discovered the new economic model for the music industry 40 years ago. We are all familiar with the sad story of how music industry bosses sought to hold back the zero-cost reproduction capabilities of digital media by locking-up the music, first, in vinyl records, then, in cassettes and eight track tapes, and finally, in CDs. When young folks everywhere joined a mass revolt against copyright and just downloaded MP3s, the music industry sued them and then ultimately capitulated into the waiting arms of Apple’s Steve Jobs.
What the Dead figured out a long time ago is that artists should give away recorded music, and make their money from touring, building brand and merchandising. Most of the band’s 5000+ live shows are available for download or at least stream on the internet (see www.archive.org/details/GratefulDead or www.deaddisc.com/GDFD_Dicks_Picks.htm). Rather than suing fans to prohibit bootleg recordings, the Dead allowed its devotees to set up microphones at their concerts and also provided high quality tapes of every show right off the mixing board.
Thus, the recordings themselves become viral advertisements for the group and build brand and demand for concert tickets and merchandise which are harder to copy. Now the downside of this model is that the band cannot just sit back and count royalties from the sale of its recorded music and deign to do a concert tour every other year to promote its latest album. Instead, the musicians need to embrace touring and playing as their primary mission. The music company also becomes more of a brand management and promotion company, with likely reduced economics. However, this is not far from where the music industry seems headed itself, with concepts like the “360 contract” which seeks a cut of non-recorded income.
As for me, I was just there to enjoy the show and muse upon content monetization models. Oh, and yes, I bought Mariana and Walter some really cool tie-dyed tee shirts.
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