Is IT still risky?

IT Risk: Turning Business Threats Into Competitive Advantage by George Westerman and Richard Hunter (Cambridge, MA: Harvard Business School Press, 2007)

As many authors in recent years have spelled out, IT has become increasingly central to business success – but many enterprises haven’t adjusted their processes for IT decision making and risk management. The result? The authors of IT Risk posit that IT risk incidents carry a much higher price tag than they used to. They harm constituencies within and outside companies. They damage corporate reputations. They expose weaknesses in firms’ management teams, and they rob profits and dampen competitive advantage.

George Westerman from the Center for Information Systems Research at the MIT Sloan School of Management and Richard Hunter of Gartner Executive Programs joined forces on a new book that sets out to demonstrate that IT risk matters more than ever. Using a number of examples from the front pages and trade media, the authors try to connect the fiduciary responsibility of business executives with the capabilities of IT specialists in order to manage IT risk:

• Failed software implementation at a pharmaceutical manufacturer leads to a company’s bankruptcy
• Data theft at CardSystems Solutions prompts the firm’s two largest customers – Visa and Master Card – to defect
• Errors in a tax-credit management system at the UK Inland Revenue (in 2003, under the watch of EDS) leads the organization to pay out over 2 billion pounds in erroneous tax credits
• Complexity of IT systems impairs a high-tech manufacturer’s ability to buy and sell businesses

The authors build a framework for IT risk in two dimensions that centers the book nicely. There are four types of IT risk: availability, access, accuracy and agility, each with their own chapter and company examples to illustrate the points in the “real world.” The second dimension is introducted in the form of “three disciplines that enterprises must master to manage IT risk efficiently:”

• A solid foundation of IT assets, people and supporting processes and controls that enable executives to manage the right risks in the right order
• A well-designed risk governance process – incuding oversight by high-level executives – that allows companies to identify, prioritize and track risks
• A risk-aware culture, nurtured from the top, that attunes people to the causes and solutions for IT risks and creates increased vigilance across the organization

All in all, IT Risk is a solid effort to bridge the gap between the board room and the data center, and the credibility that MIT and Gartner enjoy in most c-suite’s today make this a noble endeavor indeed. The book is grounded in a number of surveys and one-on-one interviews with IT executives around the world, and leads to a number of “five key practices” or “ten ways executives can improve IT risk management” sections which can be taken out of the book and refined for an individual organization or team in a different context (offsite meeting, Powerpoint deck for a team meeting, etc.). Think of it an early form of SOA/plug and play for a business book – you do have to buy the whole book, but IT Risk is more modular than your average business tome, and that can make it a compelling read for your client or prospect’s business executives.

This reader will leave you with two of my favorite “sections” to think about on your own and how you have seen this play out (or not) inside your client organizations:

Five Key Practices of an Effective IT Risk Governance Process:

1. Appoint a single person to be in charge of the process

2. Identify formal risk categories

3. Create a risk register

4. Develop consistent methods to assess risk

5. Use specialized best practices

Ten Ways Business Executives Can Improve IT Risk Management

1. Treat IT as a business risk

2. Consider risks in terms of the 4 A’s (availability, access, accuracy and agility) for both the long term and short term

3. Plug the holes in the dike, and be ready for more floods

4. Simplify the foundation

5. Create risk governance structures and process; embed IT risk management into every other business process and decision

6. Give every employee appropriate awareness of the risks, vulnerabilities and policies that matter most to them

7. Create a risk-aware culture

8. Measure effectiveness

9. Look forward

10. Lead by example

IT Risk is a somewhat dry but thorough and insightful book loaded with useful best practices for improving organizational resilience and agility. It sends a wake-up call by demonstrating how IT risks directly impact business performance and offers practical guidance on integrating IT risk management into daily business processes. Some of the high-profile lawsuits and bankruptcies resulting from IT risk run amok may seem like they can’t happen within your client’s organization (or our own!). Westerman and Hunter go a long way in proving otherwise – and reveal the dangers of clinging to that assumption.

Is there a fast boat to China after all?

Fast Boat To China: High-Tech Outsourcing and the Consequences of Free Trade – Lessons From Shanghai by Andrew Ross (New York: Vintage Books, 2006)

Most observers today are aware that jobs are being outsourced to China, India and other nations at an alarming rate. From factory jobs to white-collar, high-tech positions, the exporting of labor is one of the most controversial issues in America.

Yet few people know much about the other end – about the people who are actually working these jobs and how their own lives have been thrown into tumult by these new economic forces. Andrew Ross spent a year in China, interviewing local employees and their managers in Taiwan, Shanghai and the far western provinces of the world’s most populous country. In a quite engaging and informative book, he shows how the Chinese workforce has inherited many of the same worries as American workers, such as job instability, long hours and awareness of their own expendability. He reports on the daily reality of corporate free trade and explores the growing competition between China and India. This is an eye-opening exploration of an unseen side of our globalized world.

This was probably the best book on globalization I’ve read in 2 years precisely because it placed China, not India, at the center of the revolution of offshoring of blue-collar and white-collar jobs. The fact that the author is a native Scotsman and NYU professor who has written more than 10 books on labor around the world and can hardly be considered “pro-management” cannot be overlooked, but any way you slice this, it is the kind of story missed by the Lou Dobbs lynch mob and the high priests of globalization who see free trade as an elixir to all the world’s problems.

The story in Fast Boat to China centers around Shanghai, the historic financial capital of China that has exploded since Deng Xioping liberalized China’s economy in 1979 to become one of the world’s great (but poorly understood) cities once again. Over seven chapters and a compelling introduction and epilogue which reach 265 pages, Ross drives a narrative that weaves sociology, anthropology, economics, political and historical vantage points to help readers like this one who have never visited China firsthand understand the “China factor” beyond the mainstream media soundbites.

• The Shanghai Squeeze detailed how outsourcing became a way of life over the past 15 years. Ross describes the pros and cons of what has happened to Shanghai in what he termed the “balance sheet of outsourcing.” By comparing and contrasting two city views (new, post-1979 capitalist Pudong vs. the historical old city riverfront area called the Bund), he is able to show how the new Shanghai has embraced te concept of “localize or die” and evolved from “from milk cow to gold coast.”
• Raising The Bar explains how China (led by Shanghai) navigated the geopolitical currents of the last 25 years to gain advantage from achieving Permanent Most Favored Nation status from the US Congress in 2000 (after a decade of trying after the 1989 Tiananmen Square massacres) and entrance to the World Trade Organization earlier this decade. Ross called this “steering the gravy train” and introduces concepts such as “the rainbow’s mouth,” “the art of the doorknock,” “the ladders of mobility,” and “a little pain, a lot of gain” along the way.
• The Sent-Up Generation chapter (playing off the Sent-Down Generation that came of age during the disasterous Cultural Revolution of the 1960s) was centered around a series of personal interviews with rank and file workers in the Shanghai Pudong Software Park (SPSP), and how the hyper growth and unrealistic expectations of many 20-something Chinese workers has led to communication difficulties with higher-ups and inconsistencies in creating the “great Chinese engineer.” Possibly the most illuminating point of the chapter was the description of the emergence of what the Chinese Ministry of Education labeled “grey collar jobs” – which included a wide range of professions including fashion designers, software engineers, ad writers and numerical control technicians, among others. Demographically speaking, the “white collar misses” or xiaojie – legions of English-speaking, fashion forward, cosmopolitan lifestyle and socially independent “Shanghai Girls” coming of age was another fascinating revelation from Ross.
• Mister Tata Comes To Town explained how Indian IT heavyweights like TCS, Wipro and Infosys moved into Shanghai in the years following Y2K to exploit what one Indian politician called “India will be the world’s office while China is the world’s factory. This is the most familiar part of the book, as it chronicles the tensions between the two cultures as they vie for IT supremacy in the 21st century value chain. Personal interviews with managers and new joiners from both perspectives (Indian management vs. Chinese workers) were fascinating and worth reading for anyone who has had to deal with cultural oversimplifications and perceptions of dominant behavior by one group to another.
• The Suzhou Price chronicles the meteoric rise of the Delta economic circle that rings around Shanghai (led by Suzhou) in the last 5 years as multinational firms have started to look for more cost savings that the metropolis could deliver on its own. This “nearshore” alternative to Shanghai was virtually unknown to this reader before this chapter, and includes joint ventures with Singapore in the Suzhou Industrial Park that were utterly fascinating as Ross told them from multiple ground-level perspectives. The author does a good job talking about the quiet desperation that new migrants to the Delta economic circle feel as they start “working on the value chain gang.”
• Go West takes “nearshore” for Shanghai to the logical extreme and brings readers to China’s last frontier: neglected western provinces like Gansu, Guizhou, Qinghai, Shannxi, Sichuan, Yunnan and the special autonomous regions of Ningxia, Tibet, Inner Mongolia and Xinjiang. It involved colossal expenditures on infrastructure (highways, railways, airports, gas pipelines, water diversions, electricity transmission projects and communication networks. Ross takes the reader inside China’s Communist party politics and the Go West strategy appeal to nationalism and self-sufficiency, and the “man on the street” interviews from the “last mile” of political economy and development illuminated the many differences between China and India’s approaches to joining the first world club.
• Cross-Strait Flights is the final chapter, and looks at Shanghai’s 60 year history (and close integration since direct flights were added this decade) to Taiwan. Some of the most shocking interviews in the book came with fiercely independent engineers in Taipei who were much more sanguine about their long-term prospects vs. that of mainland China. The commentary on the US experience with offshore outsourcing from a Taipei and Shanghai perspective gave this an almost-Karl Marxian dialetic feel, and would make for great re-reading 10 years from now after some of the prophecies and predictions on the future of global distributed delivery are behind us.

Fast Boat To China takes on pro-China corporate boosterism that is rampant in the mainstream media, and uses participant/observer techniques to tell multiple stories with different voices inside the same narrative to a stirring effect. This is a must read for all those who want to peel back the onion and come away with the same “ah-ha” feeling about China that Tom Friedman created for India with The World Is Flat 3 years ago right now.

Are crowds wiser than so-called “experts?”

The Wisdom of Crowds by James Surowiecki (New York: Anchor Books, 2005) 

New Yorker business columnist James Surowiecki in The Wisdom of Crowds explores a deceptively simple idea: large groups of people are smarter than an elite few, no matter how brilliant – better at solving problems, fostering innovation, coming to wise decisions, even predicting the future.

As the book cover explains, “with boundless erudition and in delightfully clear prose, Surowiecki ranges across fields as diverse as popular culture, psychology, ant biology, behavioral economics, artificial intelligence, military history and politics to show how this simple idea offers important lessons for how we live our lives, select our leaders, run our companies and think about our world.”

The thing about this introduction is…it’s all true to this reader. In maybe the most comprehensive and well-argued business book since Malcolm Gladwell’s The Tipping Point or Clay Christensen’s The Innovators Dilemma, Surowiecki and his living URL www.wisdomofcrowds.com about the book is able to take readers through the art and science of collective intelligence as it tackles three kinds of problems: cognition, coordination and cooperation, but only when the conditions are present for the “crowd” to be wise, which are diversity, independence and a particular kind of decentralization.

Even in his 21 page Introduction, Surowiecki sells readers on two unbelievable and obscure stories where the group solves a simple problem better than any expert could: British scientist Frances Galton at a UK livestock fair used the average guess from 787 random participants in the crowd to find the weight of an ox from an 1906, and a US Navy officer named John Craven who developed multiple scenarios and then asked a team to guess how likely each scenario was with bottles of Chivas Regal as prizes to help locate a lost submarine in 1968 in the North Atlantic. The answers to both of these: 1,197 pounds (crowd) vs. 1,198 (actual) on the weight of the cow, and the discovery of the U.S.S. Scorpion 5 months after it sank was only 220 yards from where Craven’s group had said it would be in the open sea!

The chapter titles go a long way in keeping the reader balanced between the author’s thesis and case studies that prove this point over and over again:

• The Wisdom Of Crowds
• The Difference Difference Makes: Waggle Dances, the Bay of Pigs and The Value of Diversity
• Monkey See, Monkey Do: Imitation, Information Cascades and Independence
• Putting The Pieces Together: The CIA, Linux and the Art of Decentralization?
• Shall We Dance? Coordination in a Complex World
• Society Does Exist: Taxes, Tipping, Television and Trust
• Traffic: What We Have Here Is a Failure To Communicate
• Science: Collaboration, Competition and Reputation
• Committees, Juries and Teams: The Columbia Disaster and How Small Groups Can Be Made To Work
• The Company: Meet The New Boss, Same as the Old Boss?
• Markets: Beauty Contests, Bowling Alleys and Stock Prices?
• Democracy: Dreams of the Common Good?

The book is very readable and is hard to put down, so I will illustrate 3 anecdotes from the second half of The Wisdom of Crowds before letting you read the story for yourself to make up your own mind if Surowiecki is really on to something as this reader believes he is:

• In Chapter 10 about The Company, he focuses on Spanish retailer Zara, which maintains virtually no inventory and has been called by LVMH fashion director “possibly the most innovative and devastating retailer in the world.” Surowiecki answers the question of why Zara does not outsource design by using British economist Ronald Coase’s 1937 argument against “outsourcing everything:” although companies typically don’t think of it in this way, what they are really wrestling with when they think about outsourcing is the costs and benefits of collective action. Doing things in-house means, in some sense, cutting themselves off from a host of diverse alternatives, any of which could help them do business better. It means limiting the amount of information they get, because it means limiting the number of information sources they have access to. In exchange, though, they get the benefits of quicker action and no haggling. The general rule is t! hat companies will do things for themselves when it is cheaper and easier than letting someone else do them. But it’s also the case that companies will do things for themselves if they are so important that it’s not worth letting someone else do them. For Zara, speed and control are more important than sheer cost. It might actually be cheaper to let some factory in China cut and dye its fabrics. But that would deprive Zara of its most distinctive attribute: its ability to respond quickly and precisely to what consumers want.
• Later in the same chapter, Surowiecki talks about the merits of decentralization, but warns of its pitfalls which should be a clarion call for Capgemini NA employees to buy into the Joining Forces for Market Leadership campaign between P&C and AOS. “The important thing for employees to keep in mind, then, is that they are working for their company, not for their division. Enron took exactly the opposite tack, emphasizing competition between divisions and encouraging people to steal talent, resources and even equipment from their supposed comrades. This is reminiscent of the bad old days at companies like GM, where the rivalries between different departments were often stronger than those between the companies and their outside competitors…The beneficial effects of competition are undeniable, but serious internal rivalries defeat the purpose of having a company with a formal organization in the first place, by diminishing economies of scale and actually increasing the cost of monitoring people’s behavior. You should be able to trust your fellow workers more than you trust workers at other firms. But at a company like Enron, you couldn’t. And because the competition is artificial – since people are competing for internal resources, not in a real market – the supposed gains in efficiency are usually an illusion. As is the case today with America’s intelligence community, decentralization only works if everyone is playing on the same page.”
• The closing words of the book in chapter 12: “for all that, though, the solutions to cooperation and coordination problems are real in the sense that they work. They are not imposed from above, but emerge from the crowd. And, on the whole, they are better solutions than any group of Platonic guardians could come up with. And this is how we might think of democracy, too. It is not a way of solving cognition problems or a mechanism of revealing the public interest. But it is a way of dealing with (if not solving once and for all) the most fundamental problems of coordination and cooperation: how do we live together? How can living together work to our mutual benefit? Democracy helps people answer those questions because the democratic experience is an experience of not getting everything you want. It’s an experience of seeing your opponents win and get what you hoped to have, and of accepting it, because you believe they will not destroy the things you value an! d because you know you will have another chance to get what you want. In that sense, a healthy democracy inculcates the virtues of compromise – which is, after all, the foundation of the social cotntract – and change. The decisions that democracies make may not demonstrate the wisdom of the crowd. The decision to make them democratically does.”

That’s it – hard to argue with a good read, wonderfully constructed and articulated, and compelling in multiple dimensions. Surowiecki is a fine story-teller, and thus The Wisdom of Crowds is not one to miss.

Are off-ramps/on-ramps really an option for most executive women?

Off-Ramps and On-Ramps: Keeping Talented Women On The Road To Success by Sylvia Ann Hewlitt (Cambridge, MA: Harvard Business School Press, 2007)

Legions of professional women step off the career fast track at least once to raise children, care for elderly parents or manage other family demands. But when they’re ready to step back on track – just a short time later – they hit a wall. On-ramps are few and far between, and the financial penalties for “time out” are punishing. The result? Many women are lost on reentry, and companies miss the chance to leverage this talent pool. With talent shortages looming over the next decade, companies must reverse this female brain drain if they hope to beat rivals. But how can companies attract and retain professional women?

Off-Ramps and On-Ramps answers this critical question by documenting the successful efforts of the Hidden Brain Task Force – a group of 34 leading-edge global companies including Ernst & Young, General Electric, Johnson & Johnson and Lehman Brothers. Spearheaded by the author Sylvia Ann Hewlitt, over the past three years the task force had developed and driven eighteen best-practice models for companies seeking to recruit, retain and reattach talented women.The book details strategies for:

• Providing arc-of-career flexibility that enables women to “ramp down” and “ramp up” without losing traction;
• Combating the stugma that all too often undermines alternative work arrangements;
• Helping women claim and sustain ambition

Hewlitt, an economist and the founding President of the Center for Work-Life Policy and director of the Gender and Policy Program at the School of International and Public Affairs at Columbia University, uses 5 page case studies from the 34 member companies that comprise the Hidden Brain Drain Task Force in the following dimensions:

• Flexible Work Arrangements: Ernst & Young, BT Group & Citigroup
• Creating Arc-of-Career Flexibility: Booz-Allen Hamilton, Lehman Brothers & Goldman Sachs
• Reimagining Worklife: Citigroup, Time Warner & Johnson & Johnson
• Claiming & Sustaining Ambition: Johnson & Johnson, Time Warner & General Electric
• Tapping Into Altruism: Goldman Sachs, Cisco Systems & American Express
• Combating Stigma & Stereotypes: Lehman Brothers, Cisco Systems & Ernst & Young

As I see from my own company’s experience at Capgemini, forty years after the women’s revolution transformed female opportunities, women’s work lives remain very different from men’s. Fully 60 percent of highly qualified women have nonlinear careers. They take off-ramps and scenic routes and have a hard time conjuring up continuous, cumulative lockstep employment, which is a necessary condition for success within the confines of the white male competitive model. The end result: too many talented women either leave their careers or languish on the sidelines.

Employers miss out too. For reasons that range from a tightening job market to retiring baby boomers, a “war for talent” is heating up. Companies can ill afford to lose experienced, well-qualified women – they are not easily or cheaply replaced. The tugs and pulls of family life explain part of the divergence between male and female career paths, but other kinds of distinctions need to be weighed too. Women’s ambitions, it turns out, are different from men’s. While money is a primary motivator for men, it is much less important for women. Several other factors – including high-quality colleagues, recognition by bosses and flexible work options – trump compensation as reasons women go to work.

Understanding that women have a different “value proposition” from men is critical information for companies attempting to retain female talent. The fact is, many talented women need to clear a higher bar. Some have a choice as whether they go to work or not, and many struggle with serious opportunity costs. Highly qualified women tend to see a tight and guilt-ridden connection between work commitments and family well-being. Given this mindset, Hewlitt suggests it is hardly surprising that women need more than “just money” if they are to stay in their careers.

Chapter 3 is dedicated to how high-level jobs are becoming more intense and burdensome – and leaving women behind in new ways. The data provided by various organizations, including Catalyst and the Hidden Brain Drain Task Force companies, is truly alarming and should be a wake-up call to many of us who are actually working these kinds of hours, and can only be explained by those who have opted out of such insanity. Hewlitt feels our increasingly extreme work model is yet another reason to reexamine career paths and career drivers, and her arguments are quite persuasive to this reader, at least.

One of the book’s stars is someone from the extended Capgemini family – as he was someone known to the E&Y Consulting alums as the guy “who left the weather reports on EYComm” for us before the 2000 acquisition. His more successful legacy: Capgemini board member and former CEO/Chairman of Ernst & Young Phil Laskawy’s efforts to retain women by creating a culture of flexibility starting in 1997 have been highly successful. Today, nearly 30 percent of women just below partner or principal level and 10 percent of female partners are on flexible work arrangements. Indeed, estimates are that fully 82 percent of employees use some kind of flexibility. Largely as a result of this new flexibility, women’s retention levels at E&Y are equal to men’s at virtually all levels.

From its humble beginnings as the permanent strategy following a Catalyst consulting engagement in the mid-1990s, the E&Y Office for Retention has been renamed the Office for Gender Equity Strategy (GES). It now has a staff of eight and is led by a senior client service partner, Billie Williamson. GES’s mission is to develop and advance the women of E&Y and propel them into leadership roles within the company and in the wider business community. In response to what employees say they need most, a large amount of effort continues to be focused on flexibility. Thus, in addition to GES, Ernst & Young has a four person Flexibility Strategy Team, also led by Williamson.

The point is that our work in the professional services space is filled with competitors and partners who are racing to create new models to compete in the “war for talent” locally and globally. We have all made progress for sure, but our work is just beginning, and Hewlitt’s contribution to this debate and the proper role of off-ramps and on-ramps in performance and career management is impressive indeed.

Is open innovation here to stay?

Open Innovation: The New Imperative For Creating and Profiting From Technology by Henry Chesbrough (Boston: Harvard Business School Press, 2006)

Conventional wisdom today tells us companies that don’t innovate die. In a complex world, this appears one of the few certainties every company faces. But how should a company innovate – it is easier said than done. Rather than relying entirely on internal ideas to advance the business, open innovation leverages internal and external sources of ideas. Rather than restricting innovations to a single path to market, open innovation inspires companies to find the best business model – whether that model exists within the firm or with an external one. Based on author Henry Chesbrough’s extensive field research, academic study and professional experience, Open Innovation calls for revolutionary organizing principles for managing research and innovation.

Through rich descriptions of the innovation processes of Xerox, IBM, Proctor & Gamble and other firms, Chesbrough lays out the principles of open innovation in practice. This is particularly relevant for companies like Capgemini today as they embark on a global program named I³ journey around Innovation, Industrialization and Intimacy in a search for new ways between now and 2010 to unlock true value in the company’s ideas and technologies.

The book’s 9 chapters tell a rich story about the limits of “command and control” innovation while espousing the virtues of the new world order of ecosystem collaboration and open innovation:

• Xerox PARC: The Achievements and Limits of Closed Innovation
• The Closed Innovation Paradigm
• The Open Innovation Paradigm
• The Business Model: Connecting Internal and External Innovation
• From Closed to Open Innovation: The Transformation of IBM
• Open Innovation @ Intel
• Creating New Ventures out of Internal Technologies: Lucent’s New Ventures Group
• Business Models and Managing Intellectual Property
• Making the Transition: Open Innovation Strategy & Tactics

The book opens with Chesbrough laying out a number of paradoxes that confront all innovating companies in the early 21st century. While ideas abound, internal industrial research is less effective. While innovation is critical, the usual process of managing innovation doesn’t seem to work anymore. While ideas and external capital are plentiful, companies struggle to find and finance internal growth opportunities. While industrial R&D spending is high, many worry we are exhausting the “seed corn” of basic knowledge that will propel technology a generation from now.

Chesbrough chronicles the prevailing sentiment of the 20th century industrial model around closed innovation the following way as a virtuous circle: increased investment in R&D leads to fundamental technology breakthroughs leads to new products and features leads to increased sales and profits via existing business model. Said another way, the implicit rules of Closed Innovation are:

• We should hire the best and brightest people, so the smartest people in our industry work for us
• In order to bring new products and services to market, we must discover and develop them ourselves
• If we discover it ourselves, we will get it to market first
• The company that gets an innovation to market first will usually win
• If we lead the industry in making investments in R&D, we will discover the best and the most ideas and will come to lead the market as well
• We should control our intellectual property, so that our competitors don’t profit from our ideas

Contrast that view of the world with Chesbrough’s description of a paradigm shift towards Open Innovation, where the PC and movie industries show us how many external ideas, high labor mobility, active venture capital, numerous start-ups and the primary importance of universities creates a completely different ecosystem outside the traditional boundaries of the firm. The contrasting “basic principles” of Open Innovation are:

• Not all the smart people work for us. We need to work with smart people inside and outside the company.
• External R&D can create significant value. Internal R&D is needed to claim some portion of that value
• We don’t have to originate the research to profit from it
• Building a better business model is better than getting to market first
• If we make the best use of internal and external ideas, we win
• We should profit from others’ use of our IP, and we should buy others’ IP whenever it advances our own business model

Each chapter is a stand-alone story in the history of innovation in the last century, beginning with how Xerox dealt with a highly productive research laboratory, the Pale Alto Research Center (PARC). Xerox selected PARC technologies that fit its business model, and eschewed those that did not. Those rejected technologies were later commercialized outside Xerox’s value chain, enabling instead different value chains across numerous companies. Some of the technologies Xerox rightly rejected as being of little value for its business model went on to be quite valuable indeed, albeit through the use of very different business models. Chesbrough uses Xerox’s management of PARC as the transition from Closed Innovation to Open Innovation.

Chapters 2-9 illuminate some key insights from the last 100 years of commercializing industrial knowledge, including:

• Useful knowledge has become widely diffused, from the knowledge monopolies of the 20th century in the hands of a few leading companies to today’s contributions coming from companies, customers, suppliers, universities, national labs, industry consortia and start-up firms (chapter 2)
• Companies rarely take full advantage of the wealth of information available outside their four walls in the public domain (chapter 3)
• Ideas that are not readily used are lost – now more than ever, ideas and the people who create them, no longer can be warehoused until the companies’ own businesses are ready to make use of them (chapter 3)
• The value of an idea or technology depends on its business model. An inferior technology with a better business model will often trump a better technology commercialized through an inferior business model. (chapter 4)
• Intel (taking external technology inside) and Lucent (taking internal technology outside) illustrate another key concept of Open Innovation: the presence of VC changes the innovation process for everyone. Venture capital processes for adding value to the companies they finance are not well understood in technology circles, yet these processes are critical to Open Innovation (chapters 6-7)
• In a world of abundant knowledge, companies should be active buyers and sellers of IP. Millennium Pharmaceuticals, IBM and Intel illustrate the fascinating opportunities that exist in managing IP (chapter 8)

In summary, Chesbrough is able take 100 years of innovation history and weave an interesting narrative of case studies, anecdotes missed by most mainstream media or conventional academic accounts plus a theoretical framework that is short on complex modeling and long on clarity and simplicity to give readers a delightful return on investment in his 200 page book. Many of us know the “official histories” of global brands like IBM, Intel and Lucent, but Chesbrough’s account of their innovation lifecycle management approaches over the last 25 years broke new ground and went  beyond soundbites to drive home that we are really all in this innovation game together. In a crowded landscape of books with “Innovation” in the title, Chesbrough’s Open Innovation is the pick of the litter so far in this reader’s mind, and you won’t be disappointed if you make it a trusty reference guide or manifesto in your cubicle or office. 

Is innovation the missing dimension?

Innovation: The Missing Dimension by Richard K. Lester and Michael J. Piore (Cambridge, MA: Harvard University Press, 2006)

Amid mounting concern over the loss of jobs to lower-wage economies, one fact is clear: America’s prosperity hinges on the ability of its businesses to continually introduce new products and services. But what makes for a creative economy? How can the remarkable surge of innovation that fueled the boom of the 1990s be sustained? For an answer, two MIT professors (Richard Lester and Michael Piore) examine innovation strategies in some of the economy’s most dynamic sectors in Innovation: The Missing Dimension.

The basic ideas developed in the book emerged primarily from a series of case studies of new product development in cellular telephones, medical devices and garments especially blue jeans. These studies, conducted from 1994 to 2002 as part of a research program at the MIT Industrial Performance Center, served both to suggest the ideas of the book and also to ground those ideas concretely. They were chosen to represent a range of different products and professional disciplines. The cell phone and medical devices cases are drawn from two of the most technologically dynamic sectors of the economy: the information/communications sector and the life sciences/health care sector. The third case is drawn from the apparel sector, where creativity tends to be associated more with fashion than with technological advance.

In each case, the authors chose one company to study extensively, with repeat visits and multiple interviews. The material gathered at the core company was then supplemented by material gathered at other companies working on the same or similar products, either in collaboration with the first company or in competition with it. Each case included companies from Western Europe and Japan in addition to the U.S.

The companies which featured prominently in Innovation: A Missing Dimension included:

• Motorola in cellular telephones, along with Lucent, Erickson, Nokia and Matsushita;
• Levi Strauss in garments, along with American Garment Finishers, Martello, Tornello, Camaieu, Toray and Onward Kashiyama;
• Aspect Medical Devices in medical devices, along with Agilent Technologies, Chiron, Daiichi Pure Chemicals, Shimadzu Corporation and Oticon

To the authors, innovation comes down to reconciling two fundamental processes in the product lifecycle development cycle that are fundamentally at odds with one another: analysis and interpretation. Analytical processes work best when alternative outcomes are well understood and can be clearly defined and distinguished from one another. Interpretative processes are more appropriate when the possible outcomes are unknown –when the task is to create those outcomes and determine what their properties actually are. These two ways of proceeding involve very different kinds of skills, different ways of working together, different forms of managerial control and authority, and ultimately different ways of thinking about the economy.

These differences, to Lester and Priori, are not merely one of degree. The two processes make it difficult to think about both of them at the same time. Yet the ability of businesses to think about these two processes separately and to manage them simultaneously is the central challenge of product development. And finding a balance between them is the key to sustaining the innovativeness, and hence the competitiveness, of the US economy as a whole.

Chapter One introduces the three main case studies of product development and design, and its central theme is the problem of how to integrate the efforts of large numbers of people, working in different technical fields and organizational units, into a practical, profitable product design. Organizational integration is one of the core managerial challenges of our time, and management experts have devised an arsenal of tools and strategies for dealing with it. Chapter 2 is about developing the concepts of analysis and interpretation in more detail, and how most engineers and managers in the 3 case studies were biased towards the analytical approach.

In Chapter 3, the authors introduce the concept of the manager’s role in animating open-ended conversations between people from different professional and organizational backgrounds as one of a “hostess at a cocktail party.” What emerges from these dinner party conversations is more like a language community, and new products emerge out of that community.

Chapter 4 exposes two of today’s most prominent prescriptions for managers as fools’ good if the manager as cocktail party hostess metaphor is to be believed: “listen to the voice of the customer,” and “focus on your core competencies.” The bias towards analytical approaches kept managers in the case studies from understanding them interpretatively and thus undermined its role. Chapter 5 showed how against all odds, some companies are able to combine analytical and interpretative processes. However, these combinations are fragile, threatened not only by managers’ unfamiliarity with the interpretative process but also the intense pressures of economic competition.

Ultimately, in a competitive business environment, analysis will prevail, or new products will never be defined in a way that allows them to be produced and brought to market. But competitive pressures also increase the difficulties of pursuing interpretation, and this creates the need for public spaces, insulated from competition, where interpretative conversation can be pursued more freely.

Chapters 6 and 7 look at sheltered spaces for interpretation – the regulatory arena and the research university respectively, but laments the fact that many of these spaces are threatened by the adoption over the past 15 years of market-oriented reforms by business and government. The final chapter closes much as the book began: with a call to action to embrace the interpretative perspective which points to the importance of cultivating a tolerance for ambiguity – the critical resource from which true innovation derives – whie preserving the system of market signals and the managerial skills required for efficient analytical decision-making.

This was a hard book to handicap and critique, as the MIT professors formulaically prove and reprove their central argument in each of the 3 case studies, and do so in a way that shows the moral bankruptcy of analysis, analysis, and analysis as the key to corporate salvation and innovation, yet doesn’t completely convince the reader that interpretation and ambiguity equals innovation. As a communications professional reading this book, I was struck by the emphasis on story-telling that a nuclear engineer and professional economist brought to the innovation discussion, but there were times where I wished a ghost-writer had worked with the two gentleman on getting the book out of the ivory tower and down to the boardroom or plant floor.

Is reading about 24 hours in the global economy really that interesting?

Connected: 24 Hours in the Global Economy by Daniel Altman (New York: Farrar, Straus Giroux, 2007)

In Connected: 24 Hours in the Global Economy, author Daniel Altman traces 14 news stories on the same day in a 24 hour period around the world to try and identify the common themes and strands of globalization through a series of questions which form each chapter. Altman writes in the preface “this book won’t tell you what to think, but it just might help you to develop a way of thinking [about globalization.] It doesn’t claim to resolve the big questions, but it can help you to find some answers. All you need is curiosity, an open mind and a willingness to cast your thoughts back to June 15, 2005,” when the following stories were in the news:

• “Ericsson and Napster To Unveil Online Music Service” – When Does Working Together Really Work?
• “Japan Charges Mitsubishi Heavy, 17 Others For Rigging Contracts” – Can Governments Make Global Markets More Competitive?
• “Intel Signs Agreement To Help Develop ‘Digital Vietnam’” – Do Multinational Companies Bring Progress or Problems Abroad?
• “China’s Haier Considers Maytag Bid” – What Determines The Global Pecking Order?
• “Euro Group Must Be More Forceful With ECB – Juncker” – Who Really Controls The World’s Money Supply?
• “Zuma Fall Seen As Good For South African Investment” – What Does Corruption Cost?
• “Syria Aims To Have a Stock Market By Yearend” – How Important Are Financial Markets to Economic Growth?
• “Julius Bar Confirms Private Client Data Stolen” – Is the Financial System Becoming More Vulnerable To The Actions of the Few?
• “Brazil Markets Slide As Political Jitters Rise” – What Come First, Political or Economic Stability?
• “US Treasury Secretary Urges European Financial Reforms” – Can The US Set The Global Economy’s Rules?
• “Alberta Aims To Attract Skilled Oil Workers” – Is Immigration a Luxury or Necessity?
• “Former SIU Aviation Students Sue Hooters Ait Over Business Plan” – Does It Help The Economy When Ideas Have Owners?
• “Thai Airways Will Omit Interim Dividend as Cost Of Fuel Rises” – Do Disruptive Shocks Help The Economy In The Long Term?”

Altman provides three interludes to the 14 “case study” chapters on credit markets and currencies, stock markets and oil, “quick guides to the fundamental markets that link the global economy together.”

In each chapter, Altman attempts to juxtapose the news event unfolding with first-person interviews with stakeholders who are part of the morality play themselves, along with other examples of similar or opposite behaviors in other parts of the world. For example, in chapter 3 about Intel and digital Vietnam, Altman talks to the European business development leader for Moody’s Investors Service at 4 pm Berlin time about his efforts to sell credit ratings to prospective clients in Israel the next day. In addition, he contrasts Vietnam’s efforts to work with Intel with China’s efforts to censor the Internet. At the end of the day, literally and figuratively, Altman has given some credibility to both sides of the argument around multinational companies being forces of good and destroying the fabric of local cultures.

By the epilogue, Altman’s dizzying look at 24 hours in the global economy had about worn out its welcome on this reader, but the author tried to close well with the following summary:

Twenty-four hours in the global economy were over. Billions of people made the decisions that drove it, creating more than $100 billion in goods and services, plus much more emotion, experience and memory. The effects of these decisions flowed, and would continue to flow, through every possible conduit. Some decisions would be reflected in products rolling off assembly lines, others in the prices of securities, and still others in personal interactions. Each decision would cascade around the world and then forward through time. You can just imagine an updated version of the old nursery rhyme: “for want of an oil price hedge, the profit was lost; for want of a profit, the dividend was lost; for want of investors, the financing was lost; for want of an airline, the tourism industry was lost; for want of a tourism industry, the economy was lost – and all for the want of an oil price hedge.”

In general, the first-person interviews make for the best reading in Connected, but they are never long enough to hold a reader’s attention. Each chapter is only 15 pages or so, and because there are 3 or 4 plot lines per chapter, it is in essence 15 short stories under the banner of a book on globalization. In some ways, it is the narrative version of the “A Day In The Life Of” photojournalism series that swept through the publishing world in the 1980s to criss-cross and chronicle what passed for globalization in the continental US, or the Alps, or soccer matches in Europe. Unfortunately, June 15, 2005 and its ticker stories that made up the component parts of Connected just didn’t connect or sway this reader to recommend it to friends or foes alike.

Boeing 787 vs. Airbus A380 – does it matter which one comes out first?

Boeing vs. Airbus by John Newhouse (New York: Alfred Knopf, 2007)

From John Newhouse, the author of the classic study of the aviation industry, The Sporty Game, comes a new book that chronicles the high-stakes rivalry between the world’s two largest aircraft manufacturers – companies that will bet the house on a single airplane. Its title? Simple – Boeing vs. Airbus.

Long one of America’s most successful and admired corporations – and its biggest exporter – Boeing struggled to maintain 50 percent of the market share for commercial aircraft after being overtaken by the European upstart Airbus in the late 1990s. But Airbus did not remain on top for long. By 2006, the company suffered from mismanagement and had adopted the kind of complacent, risk-adverse culture that had once characterized its competitor.

Incorporating interviews he conducted throughout the industry – ranging from company leaders past and present to Wall Street analysts to design engineers and factory workers – Newhouse takes readers inside these two firms to help us understand their struggle for supremacy in a business based as much on instinct as economics. He examines the critical issues that Boeing has faced in recent years, including its difficult merger with McDonnell Douglas, its controversial move from Seattle to Chicago and a series of corporate scandals that made front-page news.

He also analyzes the troubles that have beset a once ascendant Airbus, notably an institutional structure aimed at satisfying the narrowly focused interests of its European stakeholders. Newhouse also explores the problems that now face Boeing and Airbus alike: potential competition from Japan and China, the challenge of serving burgeoning Asian markets, and the need to undo years of mismanagement.

I agree with the book flap synopsis: Boeing vs. Airbus is a fascinating, informed and insightful tale of success and failure in the turbulent, do-or-die world of the aircraft industry. It truly is the “inside story of the greatest international competition in business.”

Its nine chapters weave a global trail through the boardrooms, legislatures, air shows and airplane hangars that pit Boeing vs. Airbus in every corner of the world:

• Being Number One
• Trading Places
• Folly and Hypocrisy
• Market Share – The Airlines’ Enemy
• Playing The Game
• Meltdown and Merger
• The Very Large Airplane
• A Challenge From Asia
• Muddling Through, More or Less

Once you complete the 250 page journey through the last 25 years of aviation history, it becomes clear why Bombardier and Embraer (#3 and #4 respectively in commercial aviation) will never seriously threaten the primacy of the two leaders, as well as how the airlines themselves have a vested interest to not allow Boeing or Airbus to fall by the wayside and concede a monopolistic position to the victor.

The bloodsport over the rollouts of the new A380 and Boeing 787 in the last 12-18 months has been interesting to watch and follow in the mainstream media, but Newhouse is able to make more incisive points because of his variety of sources throughout the industry, instead of just the CEO or a politician. Boeing may have blind spots and its innocent claim that it does not benefit from subsidies related to its massive US military contracts does not ring true, but readers also see how unwieldy Airbus management and corporate strategy remains as its pan-European stakeholders are diverse and consensus is rare indeed.

As a son of two airline employees who spent 53 years combined at Eastern Airlines and a childhood where back issues of Aviation Week & Space Technology were next to National Geographic and Sports Illustrated in the den, Newhouse hit all the high points and made this a page-turner. However, even for those students of international business who are not big fans of economy seats on long-haul flights, Boeing vs. Airbus should still make your required reading list this summer, if for no other reason that Newhouse synthesizes dozens of points of view mastefully across the aviation industry value chain in such a way that is rare in today’s 24×7 media world. 

Are foundations really changing the world?

The Foundation: A Great American Secret – How Private Wealth Is Changing The World (New York: Public Affairs, 2007)

Foundations are a peculiarly American institution in many ways. They have been the dynamo of social change since the beginning of the last century. Yet they are cloaked in secrecy – their decision-making and operations are inscrutable to the point of obscurity, leaving them substaintially unaccountable.

This is the intro to a fascinating new book by Joel Fleishman, a professor of law and public policy at Duke, called The Foundation. Using the headline-grabbing moment of 2006 when Warren Buffett donated $31 billion to the Melinda and Bill Gates Foundation rather than setting up his own foundation or leaving that immense wealth to his children, Fleishman delivers 15 chapters in three parts to chronicle the good, the bad and the ugly of foundations to educate today’s readers about how private wealth is indeed changing the world.

The third sector of the American economy – the unique sector that is neither public nor private for profit – is about to become more powerful than ever as the baby boomer generation participates in the largest transfer of wealth in history when it passes on its assets to its successor generation. Fleishman is not a passive admirer of foundations in the book; rather, he exposes many faults and foibles in his desire to explain why increased calls for scrutiny and regulation will surely come from the $35 billion America’s foundations must spend by law in 2007.

Fleishman chronicles many positive contributions of the likes of Carnegie, Rockefeller, Ford and Olin in the history of American public and economic life – “from the freedom to champion social change, to be a counter-weight to both government and corporations, and to sponsor new ideas without the constraints of either shareholders or taxpayers.

Part One is a primer for the uninformed on foundations: what they do and how they do it. The first six chapters establish (with numerous examples from the last 100 years) how the 68,000 foundations in America today are all chasing the same mission: “the highest use of philanthropic capital.” Fleishman neatly juxtaposes the strategy of foundations in principle (chapter 5) and practice (chapter 6) to illustrate to readers why mission statements are not enough: accountability and metrics for what you promise up front are sometimes in short order in the not-for-profit sector.

Part Two talks about what is something missing from the internal speak of foundations – achieving impact. The author believes there are four ways to do this: leadership, focus, alignment and measurement. Using 12 case studies, Fleishman documents how high-impact initiatives have spanned the entire spectrum of society since the early 20th century:

• The Flexner Report of 1906 (the transformation of American medical education
• Rosenwald’s building schools for rural African-Americans in 1920 (building physical facilities that Jim-Crow era Southern states or even Congress wouldn’t authorize with public funding;
• National Bureau of Economic Research (economic policy research of the highest quality as an example of founding an institution to research public policy) in 1921;
• Gunner Myrdal’s An American Dilemma (transformed America’s race relations debate for three generation as an example of financed research on public policy) in 1936;
• The Ford Foundation’s Green Revolution (responsible for saving 1 billion lives in the developing world through food production methods and techniques) in 1943;
• The Rockefeller Foundation’s Population Council (to curb global population growth as an example of building applied knowledge) in 1952;
• Children’s Television Workshop and Sesame Street (examples of model building which have touched children’s lives in 110 countries) in 1966;
• Conservative Legal Advocacy through think-tanks and law schools built by the Olin Foundation and the Federalist Society) in 1975;
• Grameen Bank (microlending supported by the Ford Foundation’s officer in Bangladesh at the beginning as an example of model building) in 1976;
• The Soros Foundation (support for democraticization and civil societies in Central and Eastern Europe as an example for public policy) starting in 1980;
• Tobacco use programs (Robert Wood Johnson Foundation spent $400 million to reduce youth smoking as an example of changing public attitudes and behaviors) in 1991;
• China Sustainable Energy Program (as an example of partnership among foundations, including the Packard Foundation) in 1999.

Part Three exposes the Achilles heel of most foundations: transparency and accountability. In a series of chapters, Fleishman goes through the reasons foundations fail (though you won’t read any press releases about that!) and distills the three key ingredients for a foundation’s success: discipline, boundaries and persistence. After a fascinating chapter where he argues pro and con for the question of “should foundations be permitted to exist in perpetuity,” he closes with a chapter on his recommendations for radical reform of the so-called “third sector of American life:”

• Ways to improve the lack of accountability and foundation underperformance
• Government oversight reform, based on a model like the National Association of Securities Dealers (NASD) for tax-exempt organization oversight independent from the IRS
• Self-policing: a voluntary transparency and accountability code through what the author calls “Foundation Transparency Rating Board”
• Federal legislation to mandate or encourage foundation openness through a Foundation Freedom of Information Act (FFOIA) if foundations don’t take corrective actions on their own

It is clear that foundations are a labor of love for Fleishman, and The Foundation is an excellent look under the hood at the mysterious operations of some of the world’s greatest forces of good – unregulated philanthropic wealth. But his caution that things could get worse before they get better if the not-for-profit doesn’t step up to the plate and change their secretive ways hits home as well, and this reader now feels educated enough to argue these points about the uber-rich’s responsibility to be accountable to society for their foundation’s work beyond the publicity and PR value of having one in the first place!

Does soccer explain the world?

How Football Explains The World by Franklin Foer (London: Random House, 2004)

As most people know, football (in this case, soccer to the North American fan) is much more than a game, or even a way of life. It also provides a window into much of the world. In this surprisingly good read, American journalist and soccer fan Franklin Foer takes readers on a striking tour through the worlds of football in How Football Explains The World: An Unlikely Theory of Globalization.

On his travels, Foer encounters a collection of fans that is stranger than fiction: from a British hooligan with a Jewish mother, a Nazi father and a career as a soldier of fortune, to a fan club in Serbia that remakes itself as a brutal anti-Muslim paramilitary unit. From Brazil to Bosnia and from Italy to Iran, Foer’s is an eye-opening chronicle of how the so-called “beautiful game” and its followers can illuminate the fault lines of the world around it, from poverty to anti-Semitism to radical Islam, all seen, fascinatingly and revealingly, through the outsider’s eyes of an American lover of the game.

New Republic editor Franklin Foer, a lifelong devotee of soccer dating from his own inept youth playing days in New Jersey to an adulthood of obsessive fandom, examines soccer’s role in various cultures as a means of examining the reach of globalization. Foer’s approach is long on soccer reportage, providing extensive history and fascinating interviews on the Rangers-Celtic rivalry and the inner workings of AC Milan, and light on direct discussion of issues like world trade and the exportation of Western culture. But by creating such a compelling narrative of soccer around the planet, Foer draws the reader into these sport-mad societies, and subtly provides the explanations he promises in chapters with titles like “How Soccer Explains the New Oligarchs,” “How Soccer Explains Islam’s Hope,” and “How Soccer Explains the Sentimental Hooligan.”

Foer’s own passion for the game gives his back an infectious energy but still pales in comparison to the religious fervor of his subjects. His portraits of legendary hooligans in Serbia and Britain, in particular, make the most die-hard roughneck New York Yankees in the right-field bleachers look like choirboys in comparison. Beyond the thugs, Foer also profiles Nigerian players living in the Ukraine, Iranian women struggling against strict edits to attend matches, and the parallel worlds of Brazilian soccer and politics from which Pele emerged and returned. Foer posits that globalization has eliminated neither local cultural identities not violent hatred among fans of rival teams, and it has not washed out local businesses in a sea of corporate wealth nor has it quelled rampant local corruption. Readers with an interest in international relations economics are sure to like How Football Explains The World, but soccer fans will love it.

This reviewer’s own “globalization” story on acquiring the book: I bought it at Oxford Bookstore in Kolkata, India, during a recent visit, and as someone familiar with Foer’s work at the New Republic plus Henry Kissinger’s famous writing on how soccer strategy and national identity explains international diplomacy (i.e. differences in the European style vs. Latin America, I was expecting something else than the book I read. As an American football aficionado and a tepid soccer fan at best, I was pleasantly surprised with Foer’s sociologist and historian’s bent to his soccer analysis in each chapter. As one reviewed said (and I agree), How Soccer Explains The World is “significantly entertaining if you like soccer, and entertaingly significant if you do not.”

The book has three parts. The first tries to explain the failure of globalization to erode ancient hatreds in the games’ great rivalries, and is the “hooligan-heavy section of the book.” The second part uses soccer to address economics: the consequences of migration (“free agency” in NA parlance), the persistence of corruption, and the rise of powerful oligarchs like Silvio Berlusconi, the once and maybe president of Italy and of the AC Milan club. Finally, the book uses soccer to defend the virtues of old-fashioned nationalism – a way to blunt the return of tribalism.

The story begins bleakly and grows progressively more optimistic. In the end, Foer found it hard to be too hostile to globalization. It is hard to argue that few ideas have as much impact on more of the world’s population than that of soccer, and How Football Explains the World does that idea justice.