Category Archives: Uncategorized

Joga.com and the Return of Community

There’s no doubt about it – community is back, big time.  My personal barometer for this is the number of phone calls I am getting from senior executives of large enterprises where they start out by saying, “remember that book, Net Gain, you published back in 1997?  Well, we need you to come out and talk to us about it.”

In a way, I worry about the resurgence of interest in the concept of virtual communities as commercial enterprises.  Back in the late 1990’s, when I first wrote about this opportunity, virtually every dot com business proposal pitched the “virtual community” concept.  Few of these initiatives had anything to do with virtual communities and most of the ones that did had little understanding of what it took to build a vibrant, sustainable and scalable virtual community. The backlash was predictable.

Now, I fear that history is repeating itself.  For evidence, one need only look at Joga.com, a joint initiative sponsored by Nike and Google (for more information, see the Business Week article “Nike, Google Kick Off Social-Networking Site”).  Joga.com seeks to tap into the global enthusiasm for soccer by building a virtual community so that fans can get together online and share their interest in this sport.

So far, so good.  This is clearly a huge community, there’s a major World Cup tournament coming up this year (for those who are not soccer fans, it is the FIFA World Cup 2006 event – something that happens only every four years) and the opportunities for corporate sponsors to help organize such a virtual community are clear.

But let’s look at the implementation.  Joga.com started as a closed community – you had to be invited to join. While closed communities certainly have a valid place in some contexts, the culture of soccer is inherently open. Joga.com apparently has since opened up, presumably in response to a lot of early criticism of the invitation only policy. Once you get into Joga.com, you find that it  features Nike players, again conflicting with the open and all-embracing culture of soccer. Joga.com is closed in another important sense – it is presented as an entirely self-contained environment with few if any pointers to the enormous wealth of soccer-related content that already exists on the Web.

The organizers of Joga.com were clearly influenced by the huge success of MySpace, so they provided everyone with a personal web page.  Now, for MySpace this worked well as an opening gambit because the early participants were independent bands that got to showcase their music on these web pages and this in turn attracted their fans.  Soccer is different – this is about getting fans involved from the outset and sharing their enthusiasm with each other.  Personal web pages isolate and fragment fans, at least at the outset.

Discussion boards help to build a sense of community and there are some in Joga.com, but they are not easy to find. Also, the organization of the discussion boards swings from topics that are too broad to focus discussion to topics that are too narrow and once again contribute to a sense of fragmentation and isolation, especially in the early stages of community formation.

Joga.com is  facing the challenge confronted by every virtual community – in the early days, it is pretty lonely for the first participants – there are very few others to talk to.  One of the best ways to overcome this obstacle is by providing a rich set of quality content or some provocative experts that can engage community members and precipitate discussion.  Unfortunately, despite a few Google videos and Nike ads, there isn’t much content provided by the organizers to spark or stimulate discussion. The limited content that is available is not well organized and easily findable.

On the other hand, the organizers have clearly spent a lot of time on the design of the site (Business Week reports that the site has been under development for eight months) – perhaps too much time. Especially in the absence of stimulating content, the site comes across as too commercial and cold.

This is not a promising start for a vibrant, sustainable and scalable community.  For a creative alternative that has been flying under the radar screen, check out soccerblog.com (full disclosure: one of the talents behind soccerblog.com, is Christian Sarkar, a collaborator of mine for many years and one of the few guys who really understands what it takes to build successful commercial communities online).

Steve Rubel, over at Micro Persuasion, takes another angle on the story, noting:

It’s a departure from Google’s focus on driving more customers toward search marketing. They’re not just moving into brand marketing programs, but branded communal marketing programs.”

This is certainly a significant initiative in terms of understanding Google’s broader strategic agenda.  Google clearly has aspirations to build out communities and social networks to broaden and deepen its relationships with search users (and to provide additional platforms for context specific advertising).  Its early foray with Orkut met with mixed success at best and Google Groups appears to be gaining some momentum, but this latest initiative indicates that Google will keep trying to carve out a meaningful presence in the community space.

Alex Osterwalder at Business Model Design Blog also has an interesting take on Joga as an illustration of the “Clash of the Soccer Business Ecosystems: Google/Nike vs. Yahoo/Adidas.”  Alex notes that Yahoo! and Adidas signed up as official sponsors for the FIFA World Cup 2006. In this context, the Joga initiative can be seen as an attempt by two other key players to reap the benefits of the excitement around the World Cup without paying large sums to become official sponsors of the event.  He also characterizes the Yahoo!/Adidas play as an example of Web 1.0 thinking versus the Google/Nike play as an example of Web 2.0 thinking.

On the surface, it’s an interesting analogy, but given the concerns outlined above, it is not entirely clear that Google and Nike have really embraced the open and participatory culture of Web 2.0.

Airlines and Cell Phones

Jagdish Bhagwati, one of the most prominent economists in international trade theory, recently weighed in on a topic that is near and dear to my heart.  It’s only indirectly related to international trade – it has to do with the impending approval of cell phone use on airlines.

Bhagwati wrote an op ed piece in the Financial Times last week entitled “Fight the Phone Invasion at 30,000 Feet”.  Observing that noise pollution in public spaces on the ground is spreading like bird flu, Bhagwati warns that:

The final straw in the US (followed, presumably, by everywhere else in rapid sequence) is the impending decision to allow the use of mobile phones on flights. In this way, loud passengers will be free to jabber away in a closed cabin, saying "hi" to Joey, Joel and Josie at home just for the heck of it, or conducting their business, which is no concern of yours, by public declamation.

Bhagwati is passionate and eloquent in his opposition to this new intrusion on our privacy.  Personally, I treasure my time on airplanes as one of the few occasions when I can be out of range in an increasingly connected world. It is the one place where Linda Stone’s “continuous partial attention” still has not become the dominant mode of interaction.

We are already seeing assaults on this sanctuary in terms of wireless data connections that allow us to access the Internet and e-mail while flying 30,000 feet above the ground.  I am proud that I have generally managed to resist the temptation to connect while flying.

But this extension of the connected world is far less upsetting to me.  At least I have the choice whether or not to connect.  If my seatmate chooses to connect, it makes no difference to me.

Cell phones are another thing entirely.  Even if I choose not to connect via cell phone while flying, I am still at the mercy of anyone within a three to four seat radius of me who chooses to connect.  The sanctuary walls will be irretrievably breached.

Bhagwati does not really offer any great solutions for this attack on our privacy.  My personal hope is that some airlines will decide to block cell phone usage in an effort to attract passengers from the airlines that do allow cell phone usage.  Those airlines will have my undying loyalty – I will forgive them all their other service shortfalls.  In an effort to encourage airlines to think twice before approving cell phone usage, I encourage all of you to contact the airlines you fly most often and express your opposition to this assault on our privacy.

In the meantime, if Bose were a public company, I would advise you to go long on Bose stock.  Their QuietComfort 2 noise canceling headphones will become essential travel accessories for anyone seeking respite from the growing cacophony in the air.

The Next Revolution in Interactions

Almost ten years ago, McKinsey sponsored landmark research seeking to quantify the total amount of economic activity consumed in “interactions” – the “searching, coordinating and monitoring required to exchange goods or services.”

Now, one of the authors of that original research report – James Manyika – is leading a new effort at McKinsey to push this analysis one level deeper.  “The Next Revolution in Interactions”, an article published by the McKinsey Quarterly in the fourth quarter of 2005, reports on the initial results of this new work. It is a fascinating article with important implications for business strategy and information technology investment.

James and his co-authors distinguish three forms of work:

• Transformational – “extracting raw materials or converting them into finished goods” – examples cited include “mining coal, running heavy machinery, or operating production lines”

• Transactional – “interactions that unfold in a generally rule-based manner and can thus be scripted or automated” – examples of transactional jobs include cashiers, office clerks, truck drivers and accountants

• Tacit – “more complex interactions requiring a higher level of judgment, involving ambiguity, and drawing on tacit, or experiential, knowledge” – examples of tacit-intensive jobs include retail sales people, customer service representatives, registered nurses and general managers

Broadly, the article makes the case that there has been a pronounced shift in the composition of the US labor force towards tacit work, in part driven by a shift towards a service economy accompanied by aggressive efforts to automate transactional work. The authors point out:

This shift toward tacit interactions upends everything we know about organizations . . . . the rise of the tacit workforce and the decline of the transformational and transactional ones demand new thinking about the organizations structures that could help companies make the best use of this shifting blend of talent.

The article focuses in some detail on the role of information technology in amplifying the impact of tacit labor at three levels:

• “Eliminat[ing] low-value-added transactional activities”

• “Boost[ing] the quality, speed, and scalability of the decisions employees make”

• “Extend[ing] the breadth and impact of tacit interactions” through new and emerging technology

The authors suggest that this shift in the composition of work is important from a strategic perspective as well:

For the past 30 years, companies have boosted their labor productivity by reengineering, automating, or outsourcing production and clerical jobs. But any advantage in costs or distinctiveness that companies gained in this way was usually short-lived, for their rivals adopted similar technologies and process improvements and thus quickly matched the leaders.  But advantages that companies gain by raising the productivity of their most valuable workers may well be more enduring.

They buttress this perspective with some interesting findings on performance spreads:

The performance spread between the most and least productive manufacturing companies is relatively narrow. The spread widens in transaction-based sectors—meaning that investments to improve performance in this area still make sense. But the variability of company-level performance is more than 50 percent greater in tacit-based sectors than in manufacturing-based ones. Tacit activities are now a green pasture for improvement.

In general, I agree with the analysis presented in the article.  In particular, companies in the US have focused on improving labor productivity in large part by reengineering, automating, outsourcing or offshoring transactional activities.  There are significant opportunities to build strategic advantage by developing organizational practices to improve the productivity of tacit labor.

On the other hand, the article reinforces an unfortunate bias among American managers by creating such strong distinctions across the three different categories of labor. US companies tend to look down on transformational and transactional labor, while giving much more status to tacit labor.

In practice, the boundaries across these labor categories are much less clear. Watch a really good front line production worker or truck driver at work and you will see a lot of tacit knowledge shaping performance.  In large part, American managers have created a self-fulfilling prophecy – by defining certain work as routine, they have suppressed tacit knowledge, made existing tacit knowledge invisible and discouraged the development of new tacit knowledge.

In fact, the global success of Toyota (a company briefly referenced in the article) in competing with American auto companies is due in large part to the Toyota Production System, an approach that  makes all workers problem-solvers who are continually pushing the frontier of performance. TPS hinges upon tightly integrating transformational, transactional and tacit activities in a sustained effort to drive rapid incremental improvements in performance.

More broadly, as the pace of change in global markets accelerates and uncertainty increases, the entire notion of routine, rule-based activities ought to be challenged. In the words of my colleague, JSB, companies will need to move from coercive processes to enabling processes that encourage all participants to develop and apply tacit knowledge in their daily activities.  The winning companies will be those that reconfigure their organizations to enable all activities to become tacit activities.

There’s another bias that the article indirectly reinforces.  Confronted by accelerating change, Western executives search desperately for “safe harbors”, sources of advantage that will give them some respite from growing competitive pressures.  The article suggests that productivity improvements in tacit interactions may be more difficult to copy. This may be true, but the real message is that the only sustainable edge will come from accelerating the pace of capability building, rather than relying on any specific set of innovations in tacit interactions.

Perhaps the next revolution in interactions will come from efforts to accelerate the pace of tacit knowledge building in all activities, not just within enterprises, but across enterprises as well.

Quarterly Earnings Forecast

Dan Roberts from The Financial Times ran an article earlier this week on "McKinsey warns on guidance" (subscription required) that began with:

McKinsey is leading a growing backlash against companies providing guidance on earnings, after concluding the quarterly ritual increases share price volatility and short-termist management.

The article later goes on to observe:

Tim Koller, a partner in McKinsey’s New York office, said: "Because guidance creates short term trading opportunities, it increases rather than decreases volatility. Certain types of hedge funds like it, but then there are some hedge funds who cannot tell you what the company makes."

Nevertheless, many companies are reluctant to stop the practice, especially when slowing earnings growth means some will be accused of trying to hide bad news.

McKinsey says better ways of providing transparency for investors are by focusing on disclosure about business fundamentals and long-range goals.

McKinsey’s research reminds me of a long standing pet peeve.  I cannot tell you how many CEOs have complained to me about the short-term horizon of the stock market in valuing their stock.  From the perspective of these CEOs, investors are to blame: “Why can’t they take a longer term view, instead of hammering us on short-term performance results?”

At one level, I am very sympathetic with this.  Public markets, especially in the US, do tend to put undue emphasis on short-term performance. But who’s to blame for this?

Ask these same CEOs and their management teams two simple questions:

• What will your relevant markets look like five to ten years from now?

• What will your company need to do in order to thrive in these markets five to ten years from now?

Almost always, the answer will come back that there’s just too much uncertainty to have a clear point of view on this. But, here’s the rub: If the senior management team of acompany doesn’t have a clear point of view on where the company is headed, why should investors put a lot of faith in the long-term performance of the company? In the absence of a clear and compelling long-term perspective, investors naturally fall back on short-term results.

Now, if you probe more deeply, each executive on the management team has a set of assumptions about the long-term direction of the business.  The problem is, they rarely articulate these assumptions and they even more rarely engage in an explicit and systematic discussion with the rest of the management team to test and challenge each other’s assumptions. As a result, there is often significant divergence within the management team regarding the long-term requirements for success.

I advise these CEOs to reflect on what investors would need in order to focus on long-term performance. They should then reassess their own practices to determine what they could do to shape the horizons of their investors.

Some investors like day traders and certain hedge funds are unlikely to ever take a long-term point of view. Part of the challenge for CEOs is to attract and retain investors with a longer-term investment horizon.

But to do that, they need to have a compelling long-term narrative about their business that goes beyond generalities and platitudes. For the narrative to be compelling, it must be more than a “story” – it needs to be based on a deeply held point of view shared by the entire management team. Also, the actions taken by the company need to be completely consistent with the narrative. The entire senior management team ought to reinforce continually that narrative in their public pronouncements and help investors to understand the performance benchmarks that will indicate whether the company is on course to exploit these longer-term opportunities.  They certainly should not be catering to short-term horizons with quarterly earnings forecasts.

Doc Searls and The Intention Economy

Once again, I didn’t make it to eTech because of client commitments even though the theme for the conference – “The Attention Economy” – is a subject near and dear to my heart.

One of the debates emerging from the conference was spurred by someone not at the podium, but in the audience – Doc Searls – in a piece he wrote for the Linux Journal on “The Intention Economy”.  Doc is skeptical about all this focus on attention:

Is “The Attention Economy” just another way for advertisers to skewer eyeballs? And why build an economy around Attention, when Intention is where the money comes from?”

Doc emphasizes intention because, to him, the real value is that buyers

. . . are ready-made. You don’t need advertising to make them. The Intention Economy is about markets, not marketing. You don’t need marketing to make Intention Markets.

Now, this begins to sound like a very narrow view of markets, but Doc is quick to add:

The Intention Economy is built around more than transactions.  Conversations matter. So do relationships. So do reputation, authority and respect.  Those virtues, however, are earned by sellers (as well as buyers) and not just “branded” by sellers on the minds of buyers like the symbols of ranchers burned on the hides of cattle.”

Doc is also right to focus on the importance of “user-centric” or “independent” identity as a key enabler of The Intention Economy. A number of people that I respect, have picked up on Doc’s theme and embraced it – including Phil Windley in “Following the path from intention to attention”, Jon Udell in “Controlling Our Data” and Stowe Boyd, in “Doc Searls on The Intention Economy”.

Doc makes a lot of good points – in particular, his notion that “The Intention Economy is about buyers finding sellers, not sellers finding (or “capturing”) buyers.”  Maybe the reason I like that notion so much is that it maps to my concept of reverse markets introduced in my book Net Worth, written seven years ago:

In contrast to conventional markets, in which vendors seek out and often have the upper hand over customers, customers seeking out and extracting value from vendors characterize reverse markets.

Along with my co-author, Marc Singer, I mapped out in Net Worth the concept of “infomediaries”, representing a new kind of business model to accelerate the transition from conventional markets to reverse markets: These infomediaries would act as personal agents on behalf of customers to help them find resources of value and to extract more value from vendors. For a variety of reasons, the infomediary business model has not yet taken off, but I continue to believe there is a significant economic opportunity waiting to be captured by businesses that cross the table and explicitly take the side of the customer, rather than helping vendors to find or “capture” buyers.

While I like many of the points made by Doc, The Intention Economy is still much too narrow a view of the opportunity.  By focusing on intention to buy, we ignore the whole question of how intentions emerge in the first place.  In a world of exploding options and scarce attention, how do we find resources (products, ideas, people, etc.) we weren’t even looking for?  One option is that we wait for vendors to find us and “capture” us.  The other option is to rely on friends or agents who know us and can be trusted to be helpful in introducing us to new resources we weren’t even aware of.

Given this, The Attention Economy is a richer way of describing both the challenges and the opportunities from a customer’s perspective.  Yes, it is true, many vendors and start-ups have grabbed on to The Attention Economy to figure out clever ways to find those increasingly elusive eyeballs.

But The Attention Economy focuses on the key bottleneck of scarce attention. Vendors may try to hijack the meme, but it underscores the inescapable fact that this bottleneck is shifting power rapidly away from vendors to customers. It also highlights the key challenge for customers – how to increase their return on attention so that they get as much value as possible out of that scarce resource.

Part of that return certainly comes from enhanced convenience and value in finding the best vendor once the customer has formed an intention to buy.  But a lot more of the value comes from discovering things we weren’t even aware of – this is the real opportunity created by the Internet. It eliminates shelf-space constraints and literally makes anything in the world accessible to us.

To use Doc’s example, he knows about the ski slopes in Park City and has an intention to rent a car to get there, but how does he find out about a ski slope in Chile that offers an even better skiing experience given his particular skills and interest?

Some of that opportunity can be captured through individual surfing and serendipity.  Part of it can be realized through friends and various forms of social software that expose customers to the interests and preferences of a much broader range of people.  But I continue to believe that much of the opportunity will depend on trusted agents acting on behalf of the customer. While software and technology can amplify reach and capabilities, there is still an opportunity for businesses built around human beings to harness the power of these tools in delivering agent-based services to customers.

The real winners in The Attention Economy will be those who can help expand our horizons by sorting through the growing array of options and introducing us to resources that matter based on a deep understanding of our interests and needs, rather than narrowly fulfilling our current intentions.  Think of trusted advisors rather than transaction facilitators.

In the end, I was struck by what a vendor centric view Doc takes in his opening paragraph cited above.  Yes, Intention is where the near-term money comes from. But Attention is where the long-term value to the customer resides.

Offshoring – The GE and McKinsey Connection

Manjeet Kripalani has an interesting article on "Offshoring: Spreading the Gospel" (requires registration) in the latest issue of Business Week.  She zeroes in on an interesting pattern: the growing number of GE and McKinsey alumni that are running offshore outsourcing businesses:

While there are no numbers, anecdotal evidence suggests that scores, perhaps hundreds, of former GE and McKinsey executives and consultants play key roles as both suppliers of outsourced services and customers for them. "Every time we have an outsourcing forum, it’s like a GE and McKinsey alumni association meeting," says Sunil Mehta, vice-president of NASSCOM, India’s software industry association.

Manjeet attributes this to many factors:

Insiders and outsiders say the two are unique in their scale, their ability to attract top performers, their comfort with multiple cultures and languages, and their commitment to outsourcing. Both also view outsourcing more as a tool to increase growth and boost efficiency than as a pure cost savings exercise, a strategic insight most other corporations are only starting to grasp.

All of these are certainly relevant factors, but the one element that really stands out is the fact that these two firms, more than any others, have established a global leadership in attracting, developing and retaining top talent. It is no accident that these two firms are contributing more than their fair share of leadership of offshore outsourcing businesses. As the offshore outsourcing business evolves from wage arbitrage to skill building arbitrage, the alumni of these two firms have a natural advantage in terms of deep experience on talent development.

Now, that’s the good news. The bad news is that executives from these two firms are likely to have a blind spot.  This blind spot is likely to reinforce a blind spot that already exists among many offshore outsourcing firms, especially in India.

McKinsey has minimal experience in outsourcing of its own operations, especially when it comes to its core processes.  It will locate its operations flexibly around the globe to tap into local talent pools, but these are all captive facilities with staff employed directly by McKinsey. Although there are definitely signs of change on the horizon, the mindset and instinct of most McKinsey leaders in dealing with their own firm is to bring talent inside rather than developing broader relationships with talent outside.

GE is somewhat better on this score since it has been more active in outsourcing in a variety of its businesses.  Until recently (especially with the spin-off of Genpact two years ago), though, GE’s instinct was to offshore operations to captive facilities, rather than going one step beyond to outsourcing. And when it comes to outsourcing, GE’s experience tends to be with “first generation” outsourcing – one to one relationships with broad-based outsourcers.

As offshore outsourcing moves to a greater focus on skill building arbitrage, we are seeing a corresponding shift to “second generation” outsourcing. This form of outsourcing involves networks of companies coming together under the leadership of an orchestrator who can bring together the appropriate specialized talent to serve a specific client’s needs.  GE has very little experience with this new outsourcing model. Similarly, all the major Indian offshore outsourcing firms still tend to be focused on “first generation” outsourcing.

This will be the challenge for both GE and McKinsey alumni running offshore outsourcing operations.  They certainly understand the need to attract, develop and retain talent within their own enterprises.  But will they also understand that capability building can occur much more quickly in global process network (pdf file)of highly specialized companies coming together to serve the needs of other companies?

This is an example where a strength can also become a weakness.  By focusing so much on internal talent development, will they also ignore the growing opportunities to get better faster by working within large networks of highly specialized business partners?  The management techniques to do this are being pioneered largely by Chinese offshore outsourcing companies. To my knowledge, there are no GE or McKinsey alumni running these companies.

The Real Significance of the Dubai Ports Controversy

There’s been a lot of controversy in the past week over the Dubai Ports World acquisition of terminal facilities in US ports.  With all the coverage, though, no one has zeroed in on one of the key issues that is a real red flag for the direction of US policy.

I posted about the original acquisition deal (Dubai Ports World acquired P&O) in "Dubai as Router for the World" well over two months ago.  At the time, I focused on this deal to highlight the growth of highly specialized infrastructure management businesses on a global scale. I also discussed the role of containerized shipping in reshaping global commerce. In a separate post on "Dubai – Global Talent Magnet", I discussed Dubai’s strategy to attract talent from around the world to help build global leadership in key business sectors, starting with ports management and tourism.

The current controversy allows me to focus on implications for the US.  Let’s leave aside the obvious points that have been well-discussed, starting with the fact that Dubai Ports World would not be managing US ports, but only selected terminal facilities within ports managed by US entities, and that there are profound issues with security management at US ports that have nothing to do with who operates terminal facilities.

Let me propose a different lens for viewing this controversy, one that has largely escaped MSM attention. In the Epilogue to The Only Sustainable Edge, JSB and I outlined a different way to view public policy.  We suggested that public policy in many different domains should be reassessed in terms of implications for accelerating talent development.  So, what does the acquisition of US ports facilities by DP World have to do with talent development?

Well, US ports have been falling behind many other ports around the world in terms of productivity improvement for years. Here’s what a New York Times article (registration required) this week said:

American ports are considered somewhat backward by shipping experts outside of the country.  For example, most major ports overseas operate 24 hours a day, seven days a week.  But in the United States, ports were shut down at night until very recently. And transmitting shipping orders electronically to some American ports does not necessarily save time because the orders need to be rekeyed into the ports’ computer systems, a concession to unions trying to preserve jobs.

In contrast, DP World got its start by developing highly productive management techniques in Dubai’s own port at Jebel Ali, which has emerged as a major global transshipment center.  DP World built its business by applying this talent to manage terminal facilities at ports around the world. In seeking to block the acquisition of US ports facilities by DP World, policy makers in Congress are helping to insulate these facilities from the talent that this company has developed in managing similar facilities around the world.

Of course, there is a need to balance other public policy considerations like security, but who is speaking out forcefully for the compelling need to access global talent to improve the productivity of key infrastructure operations?  To the extent that this acquisition is defended, it seems to be in terms of the need to support a key ally in the war on terror or the much more diffuse value of free trade. Who is speaking out for the need to freely access global talent as a way to accelerate talent development domestically?

Now, here’s one irony. Many of the key executives of DP World, including its Chief Operating Officer, Ted Bilkey, are American executives.  They are refugees from American companies who could not offer comparable opportunities to accelerate talent development.  If you look through the management ranks of DP World, you will find many executives from other countries in Europe and Asia, similarly lured by the opportunity to get better faster by working for an aggressive global competitor.

There’s an even deeper irony. In my earlier posting on the rise of containerized shipping, I noted that an American entrepreneur, Malcolm McLean, came up with the innovation of containerized shipping back in 1955. McLean founded SeaLand, the company that used to employ Ted Bilkey.  The background story is that a host of non-US companies, including DP World and Hutchison Whampoa, a Hong Kong company, have been far more aggressive in developing the management talent required to exploit this innovation. They have built leadership positions on a global scale in contrast to American companies that have either been acquired or marginalized by these global competitors. SeaLand itself was eventually acquired by another global competitor, APM Terminals in Denmark.

So, a US based innovation leads to an explosion of global shipping activity.  US companies are slower to exploit this innovation than global rivals.  American management talent gets lured away to join these global rivals. When one of these global rivals seeks to acquire US terminal facilities and apply their leading edge management techniques back in the US, policy makers in Congress seek to block this from happening.

The saddest part of the story is that DP World didn’t buy P&O to get access to these US terminal facilities.  The real reason they acquired P&O was to gain access to P&O’s port operations in China, a much more rapidly growing market than the US.

Of course, this would be alarming enough if we were only dealing with talent development in port operations.  But choices we make in this arena ripple through a much broader swath of the economy.

Ports represent a significant edge in any economy.  In a world where “90 percent of the world’s goods are transported by ship, and 90 percent of these goods travel in standardized shipping containers” (from the New York Times article), the productivity of port operations can make a significant difference in global competitiveness for a broad range of other products.

If we don’t accelerate talent development in these key infrastructure operations, we will make it more difficult to build talent in other business sectors as well. Hampered by inefficient port operations, it becomes more difficult for companies in these other sectors to build domestic manufacturing operations and compete on the global stage.

To see an extreme version of this playing out, we need only look to India. It faces a severe competitive disadvantage in building global manufacturing operations relative to China at least in part because of the relative inefficiency of its port operations.  In a world where bits become more and more important, we need to remember that atoms still matter. Ports, as grimy and unglamorous as they might be, represent a key gateway into the global economy.

So why is it so important to reassess public policy in terms of accelerating talent development? There’s a simple formula: talent development drives productivity improvement and productivity improvement drives economic growth.  If played right, this becomes a virtuous cycle: economic growth creates more opportunities for talent development and the process spirals forward.  On the other hand, as the saga of American shipping ports illustrates over the past 50 years, a vicious cycle can also take hold. In the face of lower growth, motivated talent will seek out opportunities to get better faster, even if it is in the deserts of Dubai, and the talent drain will erode productivity and growth opportunities.

Who is making these points in Washington? To use George Lakoff’s terminology (but not his substantive views) in Moral Politics, we desperately need a new frame for public policy. Alas, neither the Democrats nor Republicans appear willing to break the existing frames and focus attention on talent development.

Hamel on Management Innovation

Gary Hamel’s latest article in Harvard Business Review, “The Why, What, and How of Management Innovation” (purchase required) is a useful but puzzling piece.  It’s really two articles in one – and there’s an underlying tension between the two articles.

The HBR article broadly deals with the topic of management innovation and it helps to expand our view of innovation. As he notes at the outset, many companies understand product innovation and process innovation, but few companies focus on the form of innovation that matters the most: management innovation.  Hamel observes that:

While operational innovation focuses on a company’s business processes (procurement, logistics, customer support, and so on), management innovation targets a company’s management processes.

So far, so good. But here’s the tension that pervades Hamel’s article(s): are we focused on breakthrough management innovation or continuous management innovation?

At one level, Hamel falls prey to the American executive’s obsession with breakthrough innovation. Witness his definition of management innovation:

A management innovation can be defined as a marked departure from traditional management principles, processes, and practices or a departure from customary organizational forms that significantly alters the way the work of management is performed.

Hamel’s stories at the outset, focusing on DuPont, Procter & Gamble, Visa and Linux all tend to reinforce this search for breakthroughs – fundamentally new ways of organizing and managing a business that support the success of the company for decades. This is his “first” article and it represents his primary focus in the HBR piece.

At another level, though, there is a “second” article that is struggling to break free. Hamel seems to really be trying to articulate a set of management principles to support continuous management innovation rather than breakthrough management innovation. On the first page of his article, Hamel complains that “few companies have a well-honed process for continuous management innovation.” Unfortunately, this second article gets buried in the HBR piece.

Both articles are interesting.  Hamel does a nice job of articulating a framework for coming up with “bold management breakthroughs”:

• Commitment to a big management problem – here he proposes three leading questions:

"First, what are the tough trade-offs that your company never seems to get right? . . . Second, what are big organizations bad at? . . . Third, what are the emerging challenges the future has in store for your company?"

• Novel principles that illuminate new approaches – here he offers two questions:

"What things exhibit the attributes or capabilities that you’d like to build into your organization? And what is it that imbues those exemplars with their enviable qualities?"

• A deconstruction of management orthodoxies – here he recommends testing every management belief with two questions:

"First, is the belief toxic to the ultimate goal you’re trying to achieve? Second, can you imagine an alternative to the reality the belief reflects?"

• Analogies from atypical organization that redefine what’s possible

Now, these are great ways to get executives to think creatively about new approaches to management processes but, on their own, they are unlikely to lead to much more than some creative workshops.  Hamel doesn’t really tackle the most challenging aspect of management innovation – moving from creative ideas to sustained and broad-based impact – especially in large, traditional enterprises. His final section “Get the Rubber on the Road” is particularly unsatisfying and conventional – detailed management process maps, low risk trials and portfolios of initiatives.

Lurking beneath this first article is the second article.  Hamel repeatedly comes back to a deeper question: what are the management principles required to support continuous management innovation?  He never uses this term, but think of it as meta-innovation principles.

The HBR piece offers some insight on this. For example:

These management principles – variety, competition, allocation flexibility, devolution and activism – stand in marked contrast to those we’ve inherited from the early decades of the Industrial Revolution. That doesn’t make the old principles wrong, but they are inadequate if the goal is continuous, preemptive strategic renewal.

Or:

Create a market for judgment that harnesses the wisdom of a broad cross-section of employees to set the odds on a project’s anticipated returns.

Since this is not the primary focus of the HBR piece, Hamel does a much less systematic job of exploring this topic. In the end, though, this may be the most significant breakthrough management innovation of all.  Rather than focusing on one breakthrough, why not focus on crafting a reinforcing set of management processes and practices that enable continuous management innovation?

Hamel would deny that there is any inconsistency between the topics of breakthrough management innovation and continuous management innovation.  In fact, he suggests that one (but only one of several) of the ways for a breakthrough management innovation to deliver long-lasting advantage is for it to be “part of an ongoing program of invention, where progress compounds over time.”

Hamel is certainly right as a purely logical exercise. The two forms of innovation are not inconsistent and, if done right, can be powerfully reinforcing.  Yet, in practice, I find that American management is much too focused on breakthrough innovation and seriously neglects the much broader opportunity for continuous innovation. Hamel’s article reflects this broader bias.

As I read the article, I was also struck by how enterprise-centric Hamel’s view of management innovation is.  Virtually all of the examples he cites of management innovation are confined to innovation in management processes within the enterprise.  My own sense is that most of the interesting management innovations that are emerging today involve new approaches to management across enterprises.  Once again, Hamel’s article reflects the bias of a lot of Western executives of large enterprises who are focused much too inwardly when seeking to be innovative.

While executives in the 20th century concentrated on perfecting scalable management within the enterprise, the 21st century riches may belong to those executives who focus on developing scalable management techniques across enterprises.

One more thing. Hamel reveals a surprisingly narrow and ethnocentric view of where innovation is occurring.  Virtually all of his examples are American companies and he offers this amazing observation:

It’s tough to build eye-popping differentiation out of lower-order human capabilities like obedience, diligence, and raw intelligence – things that are themselves becoming global commodities, available for next to nothing in places like Guangzhou, Bangalore, and Manila.”

Now, he just named three of the places where some of the most significant management innovation in the world is going on today. The management innovation being pioneered in these areas is precisely the kind of continuous management innovation that he claims is so important.  In some cases, like certain entrepreneurial companies in China, it is built upon a breakthrough management innovation – global process network management.  Rather than focusing on breakthrough management innovations within the enterprise, Hamel could benefit from understanding the continuous management innovations across enterprises that are emerging in Asia.

Invention versus Innovation

As part of our continuing quest to expand the focus of discussion from invention to innovation, JSB and I have contributed an article on "Funding Invention Vs. Managing Innovation" on Business Week’s web site. Check it out.

Reflections on Davos

I have been scrambling to catch up on many fronts since returning from Davos, and I am still reeling from five days of intense meetings at the World Economic Forum stretching from 7am until well past midnight.  I already posted some comments about the themes of innovation and the emergence of India and China at Davos.

Before even more time passes, I wanted to reflect on some of the experiences and encounters during the time at Davos.

As always, Klaus Schwab and his team do an extraordinary job of orchestrating an extraordinary array of discussions. These sessions capture the “gestalt” of world leaders and at the same time seek to provoke their thinking (and, increasingly, their action) on key issues facing the world.  This year’s theme official theme was “the creative imperative” and there was rich engagement on various facets of this topic.

More fundamentally, a curious mixture of complacency and dread seemed to pervade the formal and informal discussions at Davos.  On the one hand, things are going pretty well in the global economy and the participants kept coming back to the strong performance of key economies around the world.  As one economist observed on the opening day, “the outlook for 2006 is basically another goldilocks kind of year.”

On the other hand, executives in particular seemed to have a lot of anxiety about a myriad of challenges and frustrations, ranging from the possibility of pandemics to the intensifying economic competition on a global scale.  On the latter topic, there seemed to be growing recognition that the cost cutting strategies that have largely driven corporate performance over the past couple of decades are delivering diminishing returns.  At the same time, executives expressed considerable frustration about the difficulty in getting large organizations to deliver more significant and sustainable innovation to the marketplace.

Participating in these discussions, I was struck that certain themes kept surfacing.  At one level, these themes seemed to make a lot of sense, but I found that they often distracted attention from the real issues. Here are some of the themes that shaped a lot of the discussion at Davos:

Integration

This is perhaps the hallmark theme of Davos.  People from incredibly diverse backgrounds around the world come together, united by the desire to achieve greater integration on a global scale.  This desire defines what Samuel Huntington termed the “Davos man”. At one level, this is an admirable goal.  We all benefit from establishing richer connections with diverse people around the world.

At another level, though, participants kept talking about the need to eliminate boundaries.  I take a different view. Boundaries are healthy – in fact, they become the catalyst for innovation.  Without boundaries, we would not have different experiences and perspectives to bring to bear on the issues confronting us. We actually need more boundaries and more friction across boundaries. As JSB and I have written, the challenge is to harness productive friction across boundaries instead of allowing friction to become destructive or wasteful.  Rather than eliminating boundaries, perhaps what we need is more respect and willingness to engage constructively across boundaries. If we can do that, then boundaries in fact become a source of great richness.

Balance

This theme came up repeatedly.  Economists in particular seemed to be worried about “imbalances” threatening the global economy.  Americans are not saving enough. Chinese are saving too much. Coastal areas of China are growing faster than the Western rural areas.  Demand for global energy supplies is rising faster than supply.

Again, at one level, it is hard to argue with balance.  Who wants to be imbalanced?  I fear, though, that this obsession with balance betrays a static, equilibrium view of the world.  Growth is rarely balanced. Indeed, it tends to throw things out of balance. The imbalances that occur in dynamic economies and societies are not a cause for concern as long as economic and social adjustment mechanisms are permitted to operate.

There’s a cynical side of me that notes those who are most concerned about imbalance are often those who have the most assets at risk. Equilibrium is great if you have a lot of money – it means you get to keep it.

Jobs

There was a lot of talk in Davos about jobs – especially how to continue to create jobs in the West to compensate for slowing economic growth and offshoring trends.  I participated in one of these sessions, where I suggested that framing the issue in these terms tends to miss the point.

Of course, we are all concerned about the availability of jobs, but the more fundamental issue is talent development.  If people don’t develop appropriate talent and don’t continue to refresh that talent, there will be no sustainable jobs and certainly few, if any, high value jobs. Reframing the issue as talent development also highlights the increasing importance of talent as a source of comparative advantage in global markets.

JSB and I have written about talent development as a public policy issue in The Only Sustainable Edge (that in fact is the reason I was invited to participate in this session at Davos).

Most people immediately assume we are talking about educational policy when we focus on the importance of talent development.  In fact, we argue that education is becoming more marginal as the bulk of talent development occurs outside of traditional educational institutions.  As one example, the rationale for the corporation is shifting from reducing interaction costs to accelerating talent development. As we begin to recognize that talent development is a continuing process and not confined to one stage of life, we will have to broaden our view of the institutional platforms required for talent development.

We will also need to re-conceive broad swaths of public policy in terms of its ability to accelerate talent development.  Everything from immigration policy to intellectual property rights should be assessed through this lens.

Bottom line, I came away from Davos with a renewed appreciation for the role of the World Economic Forum in creating a vibrant platform for debate and discussion on a global scale.  But I also saw the importance of challenging some conventional wisdom.  Integration, balance, jobs – who could question their value? Yet, by focusing so heavily on these themes, we fall prey to a static view of the world. We risk losing sight of the dynamics that will continue to shape global prosperity.  The creative imperative that served as the theme for the Davos meeting depends on boundaries, generates imbalance and renders existing jobs obsolete.  By focusing more on these dynamics, world leaders may overcome some of their complacency and begin to see more clearly the opportunities, as well as the challenges, that lie ahead.